The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Many low-income countries do not use interest rates as their main monetary policy
instrument. In East Africa, for instance, targeting money aggregates has been pretty much the
rule rather than the exception. Nevertheless, these targets are seldom met and often readjusted
according to the economic environment. This opens up the possibility that central banks are
de facto pursuing a strategy more akin to a Taylor Rule. Estimations of small-scale models
for Kenya, Uganda and Tanzania suggest that these self-styled "monetary targeters" are
respecting the Taylor Principle, that is are on average increasing nominal interest rates more
than proportionally to inflation. Nevertheless, steep deviations from the Taylor Rule have
taken place in Kenya and Tanzania. In Uganda, these errors are much smaller, in fact similar
in size to Taylor Rule deviations found for Brazil. More surprisingly, they are smaller than
South Africa's, the continent's sole long-term inflation targeter.