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John Hooley, Lam Nguyen, Mika Saito, and Shirin Nikaein Towfighian
This paper explores the causes and consequences of fiscal dominance over monetary policy in Sub-Saharan Africa (SSA). Fiscal dominance has always been a pressing problem as it can contribute to inflation and macroeconomic instability, and increasingly so as fiscal deficits and public debt are rising in many SSA countries. We find that legal limits and availability of alternative financing options play an important role in determining the extent to which government deficits tend to be financed by the central bank. We also find economically significant effects of central bank lending to government on the exchange rate and inflation.
Ms. Catherine A Pattillo and Mr. Paul R Masson

Abstract

Existing currency unions can shed some light on the requirements for making a monetary union function smoothly and hence on desirable features of a possible currency union in West Africa. In this regard, it is also useful to survey the experience of other currency unions that have not survived.

John Hooley, Lam Nguyen, Mika Saito, Shirin Nikaein Towfighian, and Céline Allard

This paper explores the causes and consequences of fiscal dominance over monetary policy in Sub-Saharan Africa (SSA). Fiscal dominance has always been a pressing problem as it can contribute to inflation and macroeconomic instability, and increasingly so as fiscal deficits and public debt are rising in many SSA countries. We find that legal limits and availability of alternative financing options play an important role in determining the extent to which government deficits tend to be financed by the central bank. We also find economically significant effects of central bank lending to government on the exchange rate and inflation.

Mr. Andy M. Wolfe, Mr. Jeffrey M. Davis, and Mr. James Daniel
Current guidelines and practice for classifying government bank assistance operations inadequately capture in the fiscal balance some of the most common, and important, operations. The shortcomings result from the focus on the general government, the exclusion of non-cash operations, and divergences between the timing of cash outlays and the economic impact of assistance operations. Complementing the standard measures of the fiscal balance with an “augmented” balance would provide a definition that is transparent, comprehensive, and reasonably comparable across countries. The augmented balance would explicitly incorporate the major quantifiable fiscal costs of bank assistance operations that are not already included in current definitions of the overall balance.
International Monetary Fund
This Selected Issues paper analyzes euro area policies and discusses the implications of the 2007–08 financial sector turbulence for real economic activity. It examines the linkages between the financial and real sectors in the euro area. The paper discusses the European Central Bank’s (ECB) monetary analysis and the role of monetary aggregates in central banking, surveying the ongoing theoretical and empirical debate. The paper also describes the introduction of a “European Mandate” for financial sector authorities in the European Union (EU), a proposal that is under consideration by EU member states.