Ms. Alina Carare, Carlos de Resende, Andrew T. Levin, and Chelsea Zhang
In recent years, many Low-Income Countries (LICs) have implemented substantial reforms to their monetary policy frameworks, but existing economic research has not provided a clear rationale to guide those efforts. In this paper we analyze the role of monetary policy frameworks in the propagation of aggregate shocks, using a large panel dataset of 79 LICs over the period 1990-2015 as well as event study analysis for a group of 28 sub-Saharan African LICs. We find highly significant differences in the propagation of external shocks between the LICs that target monetary aggregates or inflation compared to those that maintain rigid nominal exchange rates as a nominal anchor. We also find that the large surprise devaluation of the Central African Franc (CFA) in January 1994 had highly significant effects on the GDP growth of 10 CFA countries compared to 18 similar countries that were outside the CFA zone. Our empirical analysis provides strong support for the role of monetary policy frameworks in facilitating macroeconomic stability in LICs—a conclusion that is particularly relevant as LICs now face a multitude of similar shocks associated with the global COVID-19 pandemic.
The IMF Research Bulletin includes listings of recent IMF Working Papers and Staff Discussion Notes. The research summaries in this issue are “Explaining the Recent Slump in Investment” (Mathieu Bussiere, Laurent Ferrara, and Juliana Milovich) and “The Quest for Stability in the Housing Markets” (Hites Ahir). The Q&A column reviews “Seven Questions on Estimating Monetary Transmission Mechanism in Low-Income Countries” (Bin Grace Li, Christopher Adam, and Andrew Berg). Also included in this issue are updates on the IMF’s official journal, the IMF Economic Review, and recommended readings from IMF Publications.
This paper examines macroeconomic developments and prospects in low-income developing countries (LIDCs) against the back-drop of a sharp fall in international commodity prices. The focus here—by contrast with IMF (2014a)—is on recent developments and the near-term outlook, recognizing that the new price environment is likely to remain in place for several years to come. The paper also includes a section examining the experience of LIDCs with capital inflows over the past decade.
This Selected Issues paper presents an analysis of change in Zambia’s mining fiscal regime. Foreign investment has revived Zambia’s mining sector. However, its mining sector’s direct contribution to government revenues has been low. Reflecting persistent concerns about the low contribution of the mining sector to budget revenues, the government has amended the fiscal regime many times over the last seven years. The 2015 budget introduced major changes to the mining fiscal regime. The authorities estimate that the change would boost budget revenues from the mining sector by about 1 percent of GDP, based on an assumption that the change would have no adverse impact on production.