Monetary Policy Rules For Manging Aid Surges In Africa
Christopher Adam (),
Stephen O’Connell and
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Stephen O’Connell: Swarthmore College
Edward Buffie: Indiana University
Authors registered in the RePEc Author Service: Stephen A. O'Connell ()
No 16, WEF Working Papers from ESRC World Economy and Finance Research Programme, Birkbeck, University of London
We examine the properties of alternative monetary policy rules in response to large aid surges in low-income countries characterized by incomplete capital market integration and currency substitution. Using a dynamic stochastic general equilibrium model, we show that simple monetary rules that stabilize the path of expected future seigniorage for a given aid flow have attractive properties relative to a range of conventional alternatives including those involving heavy reliance on bond sterilization or a commitment to a pure exchange rate float. These simple rules, which are shown to be robust across a range of fiscal responses to aid inflows, appear to be consistent with actual responses to recent aid surges in a range of post-stabilization countries in Sub-Saharan Africa.
Keywords: Basle Committee; capital adequacy; financial governance; financial architecture; financial reform; international standards; capital flows; poor countries; cost of capital; international development (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-cba, nep-dge, nep-mac and nep-mon
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Journal Article: Monetary Policy Rules for Managing Aid Surges in Africa (2009)
Working Paper: Monetary Policy Rules for Managing Aid Surges in Africa (2008)
Working Paper: Monetary Policy Rules for Managing Aid Surges in Africa (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:wef:wpaper:0016
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