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Title:Monetary policy rules for managing aid surges in Africa PDF Logo
Authors:Adam, Christopher
Buffie, Edward
O'Connell, Stephen
Pattillo, Catherine
Issue Date:2008
Series/Report no.:Research paper / UNU-WIDER 2008.77
Abstract: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.
Subjects:monetary policy
currency substitution
aid
Africa
DSGE models
JEL:O23
E52
F31
F35
ISBN:978-92-9230-131-6
Document Type:Working Paper
Appears in Collections:WIDER Research Papers, United Nations University (UNU)

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