- Andrew Berg, and Rafael Portillo
- Published Date:
- April 2018
Africa: Policies for Prosperity
Andrew Berg and Rafael Portillo
Africa: Policies For Prosperity Series
Christopher S. Adam and Paul Collier
For the first time in more than a generation, sustained economic growth has been achieved across much of Africa—even despite the downturn in global economic fortunes since 2008—and in many countries these gains have been realized through policy reforms driven by the decisive leadership of a new generation of economic policymakers. The process of reform is continuous, however, and the challenge currently facing this new generation is how to harness these favourable gains in macroeconomic stability and turn them into a coherent strategy for sustainable growth and poverty reduction over the coming decades. These challenges are substantial and encompass the broad remit of economic policy. Each volume in this series brings leading scholars into the policy arena to examine, in a rigorous but accessible manner, the key economic challenges and policy options facing policymakers on the continent.
Books Published in this Series
Kenya: Policies for Prosperity
Edited by Christopher S. Adam, Paul Collier, and Njuguna Ndung’u
Zambia: Building Prosperity from Resource Wealth
Edited by Christopher S. Adam, Paul Collier, and Michael Gondwe
Tanzania: The Path to Prosperity
Edited by Christopher S. Adam, Paul Collier, and Benno Ndulu
Monetary Policy in Sub-Saharan Africa
Edited by Andrew Berg and Rafael Portillo
Great Clarendon Street, Oxford, OX2 6DP, United Kingdom
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To Katie, Sarah, and Noah
To Filiz and Deniz
Contemporary perspectives on the role of monetary policy emphasize three core functions: to deliver low and stable inflation; conditional on this, to moderate fluctuations in the path of domestic output by tightening or loosening monetary conditions as circumstances dictate; and to support the smooth functioning of the payments system and the financial system more generally, so as to promote the efficient market-based allocation of credit and pricing of risk.
How these broad objectives are best met is a subject of extensive and active debate, not least as central banks around the world seek to navigate the low interest rate environment that has prevailed since 2008. Nonetheless, a strong consensus has emerged from this debate in favour of systems of ‘constrained discretion’, usually framed in terms of inflation targeting and commonly found in the industrialized economies and amongst an increasing number of middle-income countries. The ‘discretion’ reflects central banks’ operational independence in the deployment of their policy instruments, while the ‘constraint’ is manifest in an explicit, verifiable, and credible target for inflation (and possibly other economic outcomes), typically set by government. A credible inflation target of this form serves to anchor inflation expectations and to tie the authorities’ hands in a way that minimizes their incentives to act in a time-inconsistent manner. With expectations anchored, space is created for the authorities to pursue output stabilization.
The demands of these frameworks set the bar high and in practice only a few emerging market countries currently clear it. This small band includes a mere handful of African countries although, as described in this book, many more are modernizing their monetary frameworks. The economic history behind this move provides the context both for understanding this journey and for framing the analysis presented in the chapters that follow.
The journey starts in the early post-Independence decades when many Sub-Saharan African countries conducted economic policy in ways that placed infeasible demands on their fledgling central banks, burdening them with broad-based ‘development’ mandates that not only over-powered central banks’ limited instruments and operational capacity but also severely compromised their ability to deliver on their core price stability mandate. Being asked to do ‘too much’ resulted in monetary instruments being deployed to target both the exchange rate and the money supply; to target interest rates; and to direct credit to preferred sectors. Moreover, as serious macroeconomic imbalances emerged, especially during the 1980s, many central banks were drawn into attempts to sustain this dis-equilibrium with the result that official exchange rates became progressively overvalued and interest rates increasingly repressed. The resulting anti-export bias, excess aggregate demand, and extreme credit-rationing placed enormous pressure on current accounts, which in turn drew the authorities into ever more distortionary capital- and current-account controls on the balance of payments. In the end, monetary policy neither delivered sustained development outcomes nor did it provide a nominal anchor for inflation.
As the need for deep economic adjustment became increasingly clear and broad-based economic reform and liberalization programmes were put in place through the 1990s, the monetary policy pendulum swung sharply to the other extreme, away from broad development mandates and towards tightly con strained frameworks anchored on floating exchange rates and characterized by strict controls on the growth in money aggregates. These frameworks reflected—and were reinforced by—the theory and practice of ‘financial programing’ that underpinned IMF support for stabilization efforts across the continent. Financial programming embodied a diagnosis that located concerns about macroeconomic stabilization in a structural lack of fiscal control, in other words in problems of fiscal dominance. IMF programmes and associated monetary policy frameworks became increasingly rule-based and focused narrowly on the control of the asset side of central bank balance sheets. Quantitative targets on reserve money growth emerged as the intermediate target of monetary policy and these in turn were secured by tightly binding ceilings on net domestic assets (i.e. credit from the central bank to government), ceilings that were often enforced through crude but effective ‘cash budgeting’ fiscal rules. These structures effectively purged all vestiges of discretion from monetary frameworks.
As it turned out, prevailing global economic conditions were favourable to aggressive price stabilization, but nonetheless African central banks, working in concert with fiscal authorities, were remarkably successful in delivering on the core objective of price stability. Inflation tumbled across the continent so that since the early 2000s, median inflation is now firmly anchored in the mid-single-digit range.
But as inflation has been brought under greater control, central banks in Africa have begun to focus their attention on the other elements of their mandate and in particular on how the gains from the hard-won struggle to limit fiscal dominance can be used to allow monetary policy to play a more supportive role in macro-economic policy making. Attention is therefore turning to questions of how policy instruments should be deployed to manage short-run volatility in domestic economic activity, in exchange rate movements, and in interest rate instruments themselves; of how institutional reforms can support greater transparency of central bank actions and improved communication of economic analysis and forecasting; and of how the channels of transmission of monetary policy can be better understood and modelled to support policy implementation.
The IMF has been a central player throughout this period of transition, initially as the external ‘agency of restraint’ supporting (and some would say driving) technocrats’ attempts to address fiscal dominance through the 1990s and, latterly as the champion of the move to modernize monetary frameworks and to give operational substance to the model of the independent central bank operating under a regime of constrained discretion.
Much of the work in this book draws on the accumulated experience of the IMF as an institution and of some of their counterparts in African central banks. The result is a superb collection of papers that contribute to frontier research in applied monetary economics and combine this analytical rigour with a deep understanding of how the structural realities of African economies necessarily shape and inform this analysis, whether in understanding the role of food price shocks, or handling aid flows, or conducting monetary policy when domestic asset markets remain thin, or where information and data are scarce.
As Series Editors, we are delighted with the collection which we believe will be an invaluable resource for researchers and scholars but, more importantly, for practitioners and policymakers in central banks in Africa.
Christopher S. Adam and Paul Collier
Policies for Prosperity
Since the mid-1990s the economic prospects for Africa have been transformed. The change has been uneven: some countries remain mired in conflict and economic stagnation. But for many macroeconomic stability has been achieved—even through the global economic crisis—and far-reaching policy reforms have been put in place. For these countries, growth prospects in the early 21st century are much brighter than at any time during the final quarter of the last century. But converting favourable prospects into sustained growth and decisive poverty reduction requires a degree of good luck, good policy formulation, resources, and a lot of good economic management. For policy improvements to be sustained they must be underpinned by more fundamental shifts in political power; sectional interests ruling through patronage must be defeated by the public interest. For the shift in power to be decisive, the achievements of individual reformers must be locked in through the development of institutions. The challenges are formidable: they range beyond the conventional agenda of macroeconomic management, infrastructure provision, and the improvement of the investment climate. For example, land policy, which has usually been left dormant, will need to be rethought in the face of high population growth rates and growing urbanization. Trade and industrial policies will need to be rethought so as to engage more effectively with changing global opportunities. The continent will need to develop adaptive policies in the face of rapid climate change.
Many of the successes of recent decades have been wrought by the progressive leadership of a new generation of policymakers. To build on these successes, this same generation needs both the support of, and restraint by, an informed and engaged society. This is the fundamental philosophy of this series: informed societies are strong societies. If citizens are to hold governments to account, they require information, debate and dispassionate analysis on the challenges and choices confronting countries and their people. This is especially relevant in the realm of economic policy where path-dependency is powerful and the consequences of choices are far-reaching and long-lasting.
In many industrialized economies there is a long tradition of informed debate and analysis sustained in large measure by high-quality financial journalism. In Africa, by contrast, while a dynamic and often fearless free press is now quite widely established, it still lacks a tradition of solid, durable, and independent writing on economic policy. As a result local debate is too often ill-informed or is perceived to be driven by the agendas, and cheque-books, of sectional interests and international organizations.
There is now considerable academic research on the issues that matter for Africa and it could potentially inform Africa’s debates. But to date it has been disconnected from them. Increasingly, academics write only for other academics rather than to inform the public. With this series of books we seek to build bridges between the evidence from solid research and contemporary policy debates. Each book aims to bring together the best international and domestic scholars with policymakers working on economic policy issues across the continent. Throughout, our contributors are required to write with clarity, avoiding academic jargon, but equally avoiding advocacy. Focusing on the key issues that matter for a society, each chapter aims to leave readers better able to draw their own conclusions about important choices.
Christopher S. Adam
Oxford, July 2014
This book represents our close collaboration over many years on the topic of monetary policy in sub-Saharan Africa (SSA). It began when we were both in the African Department of the IMF in 2006, and continued through many years at the IMF’s research department.
The topic was massively understudied. Without a doubt, the major economic questions in SSA involve health and education, infrastructure, financial development, the effectiveness of the state, and more broadly, the promotion of institutions conducive to development. Even within macroeconomics narrowly construed, fiscal policy drives more volatility than monetary policy, causes more crises, and is more closely linked to these broader issues. But while monetary policy deserves only a small fraction of total attention, it receives much less than that. Almost all economists working on low-income countries naturally focus on ‘development economics’, which has little room for monetary policy. And almost no monetary economists work on low-income countries, where the data are poor, the share in world GDP low, and the investment required to understand the policy issues and regimes is large. Meanwhile, central bankers and academics from the region face capacity challenges.
Our work received a huge boost when we joined forces with the UK’s Department of International Development (DFID), which starting in 2012 financed a research project with the IMF on the macroeconomics of low-income countries, with an important component on monetary policy. Like us, DFID was eager to generate research that was actually used by policymakers in low-income countries. We were thus able to combine academic-style research with applications of this research directly in central banks and with IMF country teams. We also participated in the writing of two major IMF policy papers on monetary policy regimes in low-income countries. This book is largely the fruit of all these efforts.
Our background in advanced-country and emerging markets macroeconomics has shaped our overall analytic approach. One upshot of this experience was a growing dissatisfaction with the usefulness of the quantity-based models that in those days formed the basis of IMF ‘financial programming’, at least for the purpose of analysing monetary policy in a floating exchange rate context. Another was an appreciation, learned from Douglas Laxton, about the merits of small models as the core of an inflation forecasting and policy analysis system in inflation-targeting (IT) central banks.
One implication of this background is that we tend to see monetary policy issues in low-income countries in SSA as differing in degree, but not fundamentally in kind, from those of more developed countries. There is no sharp analytic divide with Peru and Mexico on one side and Uganda and Mozambique on the other. We thus in general have attempted to start with approaches that have been fruitful in emerging markets and then capture the most important differences in low-income countries.
We have worked closely with many colleagues on these topics over the years. We would like to single out Michael Atingi Ego, Deputy Director of the IMF’s African Department and formerly Executive Director of Research at the Bank of Uganda. For over ten years, and to our great intellectual benefit, we have been discussing the questions at the heart of this book with Michael. And we have worked hand in hand with him when collaborating with colleagues in the African Department of the IMF and in African Central Banks.
We would like to thank many colleagues at the IMF and in academia for their advice, cooperation, and friendship in this endeavor, especially: Chris Adam, Rahul Anand, Olivier Blanchard, Mirek Benes, Ed Buffie, Romain Houssa, Yaroslav Hul, Darryl King, Douglas Laxton, Andy Levin, Nils Maehle, Stephen O’Connell, Maxwell Opoku-Afari, Jonathan Ostry, Catherine Pattillo, Adam Remo, Filiz Unsal, David Vavra, and Felipe Zanna. We would also like to thank our colleagues at various central banks in SSA, including Thomas Kigabo, Adam Mugume, Esman Nyamongo, Governor Benno Ndulu, Former Governor Njunguna Ndung’u, and Deputy Governor Louis Kasekende. Our work has benefitted from excellent research assistance over the years, including from Enrico Berkes, Will Clark, Pranav Gupta, and more recently Xi Zhang and Jun Ge, and excellent administrative assistance from Biva Joshi and Stephanie Fallas.
- List of Illustrations
- List of Tables
- List of Contributors
- 1. Monetary Policy in Sub-Saharan
- Africa Andrew Berg and Rafael Portillo
- 2. Inflation Targeting in Uganda: What Lessons Can We Learn from Five Years of Experience?
- Martin Brownbridge and Louis Kasekende
- PART I. EMPIRICAL EVIDENCE
- 3. Introduction to Part I
- Andrew Berg and Rafael Portillo
- 4. Economic Fluctuations in Sub-Saharan Africa
- Giovanni Melina and Rafael Portillo
- 5. The Monetary Transmission Mechanism: Lessons from a Dramatic Event
- Andrew Berg, Jan Vlcek, Luisa Charry, and Rafael Portillo
- 6. Identifying the Monetary Transmission Mechanism in Sub-Saharan Africa
- Bin Grace Li, Christopher Adam, Andrew Berg, Peter Montiel, and Stephen O’Connell
- PART II. ANALYTICAL ISSUES RELEVANT FOR MONETARY POLICY ANALYSIS IN SUB-SAHARAN AFRICA
- 7. Introduction to Part II
- Andrew Berg and Rafael Portillo
- 8. On the Role of Money Targets in the Monetary Policy Framework in SSA: Insights from a New Keynesian Model with Incomplete Information
- Andrew Berg, Rafael Portillo, and Filiz Unsal
- 9. Implementation Errors and Incomplete Information: Implications for the Effects of Monetary Policy in Low-Income Countries
- Rafael Portillo, Filiz Unsal, Stephen O’Connell, and Catherine Pattillo
- 10. On the First-Round Effects of International Food Price Shocks
- Rafael Portillo and Luis-Felipe Zanna
- 11. Implications of Food Subsistence for Monetary Policy and Inflation
- Rafael Portillo, Luis-Felipe Zanna, Stephen O’Connell, and Richard Peck
- 12. The Short-Run Macroeconomics of Aid Inflows: Understanding the Interaction of Fiscal and International Reserve Policy
- Andrew Berg, Tokhir Mirzoev, Rafael Portillo, and Luis-Felipe Zanna
- 13. Modelling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New Keynesian Framework
- Jaromir Benes, Andrew Berg, Rafael Portillo, and David Vavra
- PART III. APPLIED MODELS FOR POLICY ANALYSIS AND FORECASTING IN SSA: SELECTED CASE STUDIES
- 14. Introduction to Part III
- Andrew Berg and Rafael Portillo
- 15. On the Sources of Inflation in Kenya: A Model-Based Approach
- Michal Andrle, Andrew Berg, R. Armando Morales, Rafael Portillo, and Jan Vlcek
- 16. Do Money Targets Matter for Monetary Policy in Kenya?
- Michal Andrle, Andrew Berg, Enrico Berkes, R. Armando Morales, Rafael Portillo, and Jan Vlcek
- 17. Monetary Policy in Low-Income Countries in the Face of the Global Crisis: A Structural Analysis
- Alfredo Baldini, Jaromir Benes, Andrew Berg, Mai C. Dao, and Rafael Portillo
- 18. Introducing a Semi-Structural Macroeconomic Model for Rwanda
- Luisa Charry, Pranav Gupta, and Vimal Thakoor
- 19. Inflation Forecast Targeting in a Low-Income Country: The Case of Ghana
- Ali Alichi, Marshall Mills, Douglas Laxton, and Hans Weisfeld
- 20. A Structural Analysis of the Determinants of Inflation in the CEMAC Region
- Rafael Portillo
List of Illustrations
- 1.1 Capital Account Openness (Chinn-Ito) Index (Period Average)
- 1.2 Exchange Rate Classification (Sub-Saharan Africa)
- 1.3 Correlation (at Business Cycle Frequency) between Inflation and the Output Gap, Against Income per Capita
- 1.4 De Facto Exchange Rate Classification in SSA
- 1.5 Measure of Central Bank Transparency
- 2.1 Structural Liquidity and Issuance of Monetary Policy Instruments to Mop it up, Shilling Billions: Jan 2015–October 2016
- 2.2 Nominal and Real Effective Exchange Rate Indices (2009/10 = 100), Monthly Averages, January 2010–August 2016
- 2.3 CBR, Seven-Day Interbank Rate, 364-Day TB Rate, Average 7–12 Month Time Deposit Rate and Average Lending Rate; July 2011–August 2016
- 2.4 Annual Core Inflation Rates: July 2006–October 2016 (two series)
- 4.1 Box Plots of the Trade Balance and Openness to International Trade (% of GDP)
- 4.2 Kenya’s Log-Real-Per-Capita GDP: Smooth and Piecewise Linear Trends
- 4.3 Box Plots of Correlations between Real Output and the Trade Balance
- 4.4 Box Plots of Correlations between Real Output and Inflation Rate (CPI and GDP deflator based)
- 5.1 The Run-Up
- 5.2 The Monetary Policy Contraction and its Aftermath
- 5.3 Emerging and Frontier Markets Real Exchange Rates
- 5.4 VIX (Index) and EAC4 Exchange Rates
- 5.5 Nominal Exchange Rate Depreciation, MoM Annualized in Per cent
- 5.6 CPI Inflation, MoM Annualized in Per cent
- 5.7 Excess Reserves
- 6.1.a Impulse Responses to Monetary Policy Shock: Baseline
- 6.1.b Power Functions for Monetary Policy Shock
- 6.1.c T-stat for Monetary Policy Shocks
- 6.2 Impulse Responses and Power Functions: CEE-CB Baseline
- 6.3 Weak Transmission (elasticities in IS and PC scaled down by 75%)
- 6.4 Smoothing Parameter (scaled down by 75%)
- 6.5 CEE-PS Wrong Identification
- 6.6 CEE-PS Money Target Model (λ ¼ 0:95) 8.1 Sensitivity Analysis for λ*
- 9.1 Impulse Response Functions Under Complete and Incomplete Information
- 10.1 First–Round Effects: Financial Autarky (FA), Complete (CM) and Incomplete Markets (IM)
- 11.1 Stylized Facts
- 11.2 Calibration
- 11.3 A Monetary Policy Shock, εMP< 0
- 11.4 A Shock to Food Sector Productivity, εAF< 0
- 11.5 Standard Deviation of Output Gap and Welfare Loss, With and Without Subsistence
- 11.6 Welfare Losses at Alternative Food-Inflation Weights
- 12.1 Possible Fiscal and Reserve Policy Combinations
- 12.2 External and Internal Balance
- 12.3 Alternative Spend and Absorb Scenarios
- 12.4 Alternative Reserve Policy Responses: Impact on
- 12.5 Spend and Absorb Scenario (Per cent Deviations from Steady State)
- 12.6 Spend, No Absorption Scenario (Per cent Deviations from Steady State)
- 13.1 Foreign Interest Rate Shock under Different Exchange Rate Regimes
- 13.2 Foreign Interest Rate Shock under Different Exchange Rate Regimes, Flexible Prices
- 13.3 Foreign Interest Rate Shock under Different Exchange Rate Regimes, Alternative Specification
- 13.4 Temporary Terms of Trade Shock Under Different Exchange Rate Regimes
- 13.5 Quasi-Permanent Terms of Trade Shock in Different Exchange Rate Regimes
- 13.6 Quasi-Permanent Terms of Trade Shock, Reserve Losses Under Intervention-Based Exchange Rate Regimes
- 15.1 Food and Non-food Inflation, Kenya
- 15.2 Domestic and International Food Prices (in US$)
- 15.3 Short-Term Interest Rates, Kenya
- 15.4 Impulse Response Functions,
- 15.5 Impulse Response Functions,
- 15.6 Trend/Gap Decomposition, Relative Prices
- 15.7 Trend/Gap Decomposition, GDP
- 15.8 Trend/Gap Decomposition, Real Interest Rates
- 15.9 Shock Decomposition, Output Gap
- 15.10 Shock Decomposition, Non-Food Inflation
- 15.11 Shock Decomposition, Food Inflation
- 15.12 Shock Decomposition, Headline Inflation
- 15.13 Shock Decomposition, Nominal Depreciation
- 15.14 Central Bank Rate—Repo Rates
- 15.15 Sensitivity Analysis, Alternative Calibration
- 16.1 Foreign Demand Shock
- 16.2 Money Demand (Liquidity) Shock
- 16.3 Domestic Demand Shock
- 16.4 Overnight Interbank Rate and Taylor–Rule–Implied Rate
- 16.5 Real Money and Output Growth
- 16.6 Money Multipliers and Velocity
- 16.7 Money Growth: Filtered vs. Predicted
- 16.8 Actual Reserve Money and Reserve Money Targets
- 16.9 Policy Stance and Target Misses
- 16.10 Reserve Money Deviations from Target
- 16.11 Reserve Money Target Misses, Shock Decomposition
- 17.1 GDP Composition by Sector, 2011
- 17.2 Real Per Capital GDP Growth and Inflation (%)
- 17.3 Zambia During the Crisis
- 17.4 Model Blocks
- 17.5 Impulse Response Functions of Key Variables to a Terms of Trade Shock and a Monetary Policy Shock
- 17.6 Impulse Response Functions of Key Variables to a Risk Premium Shock and a Banking Shock
- 17.7 Overview of the Baseline Simulation
- 17.8 Simulated and Imputed Quarterly Real GDP
- 17.9 Real GDP Growth Excluding Agriculture and Mining
- 17.10 Tuned Paths of External Shocks
- 17.11 Structural Shock Decomposition 1
- 17.12 Structural Shock Decomposition 2
- 17.13 Structural Shock Decomposition: Monetary Variables
- 17.14 Counter-Factual Simulation 1: Flat Money Growth
- 17.15 Counter-Factual Simulation 2: Expansionary Policy
- 17.16 Counter-Factual Simulation 3: the Role of Nominal Rigidities
- 17.17 Key Monetary Variables Prior to and During the Crisis
- 18.1 Rwanda: Selected Economic Indicators, 2006–2013
- 18.2 Impulse Response Functions I (Demand Shocks)
- 18.3 Impulse Response Functions II. Supply Shocks: Core (solid line), Food (long-dashed line), and Fule (short-dashed line)
- 18.4 Impulse Response Functions III (Interest Rate Shock)
- 18.5 Real Exchange Rate Trend and Gap
- 18.6 Real Interest Rate Trend and Gap
- 18.7 Output Trend and Gap
- 18.8 Shock Decomposition of Headline Inflation (YoY)
- 18.9 Shock Decomposition of Core Inflation (YoY)
- 18.10 Shock Decomposition of Food Inflation (YoY)
- 18.11 Shock Decomposition of Oil Inflation (YoY)
- 18.12 Shock Decomposition of the Output Gap
- 18.13 Exogenous Variables
- 18.14 In-sample Forecast of the Main Variables
- 18.15 Out-of-sample Forecast of the Main Variables
- 19.1 Ghana: CPI Inflation, 2000–2008 (Per cent year-on-year)
- 19.2 Ghana: Baseline IT, 2008–2018
- 19.3 Ghana: Baseline with Full Credibility, 2008–2018
- 19.4 Ghana: Negative Supply Shock, 2008–2018
- 19.5 Ghana: Positive Supply Shock, 2008–2018
- 19.6 Ghana: Positive Demand Shock with Delayed Policy Response, 2008–2018
- 19.7 Ghana: Linear versus Optimal Disinflation 2008–2015 (year-on-year, per cent)
- 19B.1 Non-linear Phillips Curve, an Example
- 20.1 CEMAC: Inflation and Non-Oil Fiscal Deficits 1998–2008
- 20.2 CEMAC: Inflation and the Fiscal Stance 1998–2008
- 20.3 CEMAC: Non-Oil Growth and the Fiscal Stance 1998–2008
- 20.4 CEMAC: Average Money Growth and the Fiscal Stance 1998–2008
- 20.5 CEMAC: Domestic and Imported Inflation 1996:1–2007:4
- 20.6 CEMAC: Domestic Quarterly Inflation 1996:1–2007:4
- 20.7 CEMAC: Impulse Response Functions Following a 1 Per cent Increase in the Fiscal Stance, Based on VAR Estimates
- 20.8 Impulse Response Functions Following a 1 Per cent Increase in the Fiscal Stance, Model Simulations
- 20.9 Impulse Response Functions, Passive Versus Active Monetary Policy, Model Simulations
List of Tables
- 1.1 Inflation in SSA: 1985–95, 1995–2005, 2005–2012
- 1.2 Bank-Deposits, Private Credit, and Spreads: SSA
- 1.3 De Jure Monetary Policy Frameworks in Sub-Saharan Africa
- 1.4 Characteristics of Deviations from Reserve Money Targets for Selected SSA Countries
- 2.1 Velocity of Broad Money (M2) and M2 money multiplier, 1999/2000 to 2010/11
- 2.2 Key Features of the Monetary Targeting and IT Frameworks in Uganda
- 2.3 Gross Nominal Public Debt, Per cent of GDP: 2009–16
- 2.4 Government Net Financing from the Bank of Uganda: Shs Billions, 2011/12–2015/16
- 2.5 Core Inflation Forecasts and Outturns
- 2.6 Average Annual Core Inflation and Standard Deviations of Core Inflation Rates under Monetary Targeting and Inflation Targeting Frameworks
- 4.1 Number of Countries Covered in Each Group
- 4.2 Income per Capita (Median Values)
- 4.3 Median Real Output Growth and Inflation Rates
- 4.4 GDP by Sectors (Median Values)
- 4.5 Demand Components in Per cent of GDP (Median Values)
- 4.6 Financial Sector Development (Median Values)
- 4.7 Balance of Payment Indicators (Median Values)
- 4.8 De Jure Capital Account Openness (Median Values)
- 4.9 Sovereign Assets and Liabilities (Median Values)
- 4.10 Real Output—Median Volatility and Persistence
- 4.11 Standard Deviations of Key Macroeconomic Variables relative to that of Real Output and Correlations of Real Output with Leads and Lags of the Same Variables
- 4.12 Standard Deviations of Key Macroeconomic Variables relative to that of Real Output and Correlations of Real Output with Leads and Lags of the Same Variables
- 4.13 Correlations of Key Macroeconomic Variables
- 4.14 Inflation—Median Volatility and Persistence
- 4A.1 Data Sources
- 4A.2 Country Coverage
- 5.1 Basic Economic Indicators, 2011
- 5.2 Financial Sector Indicators, 2011 5A.1 Policy Regimes as of 2011
- 8.1 Characteristics of Deviations from Reserve Money Targets
- 8.2 Parameters and Standard Deviations 9.1 Parameters and Standard Deviations
- 11.1 Relative Price of Food: Estimated AR(2)
- 11.2 Calibration
- 11.3 Welfare Losses from Alternative Targeting Rules, Rich and Poor Countries
- 12.1 Selected Macroeconomic Variables, Uganda, 1998–2004
- 12.2 Benchmark: Calibrated Parameters
- 12.3 Sensitivity Analysis
- 13.1 Overview of Sectoral Balance Sheets
- 13.2 Calibration of the Model
- 13.3 Implications of Each Regime for the Parameterization of the Taylor Rule and the Intervention Rule
- 13.4 Summary of the Results
- 15.1 Calibration
- 15.2 Calibration (continued)
- 15.3 Calibration (continued)
- 16.1 Standard Deviations
- 16.2 Calibration of the Money Block Parameters
- 16.3 Calibration of Standard Deviations (STD) of Shocks
- 16.4 VECM Estimates
- 17.1 Selected Economic Indicators
- 17.2 Financial Depth Indicators
- 17.3 Calibration of Model Parameters and Steady State Ratios
- 17.4 Model Performance Across Alternative Monetary Policy Responses
- 17.5 Money Targets in Zambia (2008–2009), in bn of Kwacha
- 18.1 Data Series
- 18.2 Calibration
- 20.1 CEMAC: Variance Decomposition by Type of Structural Shock
- 20.2 Calibration
List of Contributors
Andrew Berg is Deputy Director of the IMF’s Institute for Capacity Development. He first joined the IMF in 1993, most recently in the Research Department as chief of the development macroeconomic division and before that in the African Department, including as chief of the regional studies division and mission chief to Malawi, and in the Department of Strategy Policy and Review. He has also worked at the US Treasury and as an associate of Jeffrey Sachs. He has a PhD in Economics from MIT and an undergraduate degree from Harvard. He has published articles on, among other things, growth accelerations, the macroeconomics of aid, predicting currency crises, inequality, and the implications of public investment for debt sustainability, in addition to monetary policy.
Rafael Portillo is Deputy Chief of the Economic Modelling Division in the Research Department of the IMF. He has also worked in the Western Hemisphere, Monetary and Capital Markets and African Departments. He took leave from the IMF in 2016–17 to work at the Joint Vienna Institute. His work has focused on macroeconomic modelling and monetary policy issues, through surveillance, research, and technical assistance. Mr Portillo has co-authored several IMF policy papers, working papers, and academic publications. He received his PhD in Economics in 2006 from the University of Michigan and also holds degrees from the Université Paris I (Panthéon-Sorbonne) and the Université Paris IX (Dauphine).
Christopher Adam is Professor of Development Economics, Head of the Department of International Development, and Research Associate at the Centre for the Study of African Economies at the University of Oxford. He is currently the Lead Academic for Tanzania for the International Growth Centre (IGC) and a Visiting Scholar at the IMF. He is a Fellow of the European Development Network (EUDN). He holds a DPhil in Economics from Nuffield College, Oxford and is an associate editor of the Journal of Development Economics and the Oxford Review of Economic Policy.
Ali Alichi is a Senior Economist on the United States desk in the IMF’s Western Hemisphere Department. He previously held positions in different departments in the IMF, including most recently in Research, and Asia and Pacific Departments. His research covers a broad range of topics, including monetary policy, fiscal policy, exchange rate dynamics, sovereign debt, income polarization, and economic model ling. Mr Alichi holds a PhD in Economics from Boston University.
Michal Andrle is a senior economist at the IMF’s research department, where he works mainly on development and policy analysis with multi-country models. Before joining the IMF in 2010, he was a member of the New Area Wide Model team at the European Central Bank’s research department. While at the Czech National Bank, he was instrumental in the development and implementation of the core forecasting and policy analysis DSGE model ‘g3’, which is still actively used as a core policy model. He also gained five years of experience at the Financial Policy Department of the Czech Ministry of Finance.
Alfredo Baldini is the IMF Resident Representative in Zambia. At the IMF since 2000, he worked at the IMF’s Institute, the Fiscal Affairs and African Depart ments. Before joining the IMF, he served on the Council of Economic Advisers of the Ministry of Finance of Italy. He held teaching and research positions at various universities: Bocconi University in Milan, London School of Economics, New School for Social Research in New York and DELTA in Paris. He holds an MSc and PhD in Economics from the University of London, UK and a degree in Economics from Bocconi University, Italy.
Jaromir Benes is a senior economist at the IMF.
Enrico Berkes is a PhD candidate at Northwestern University. He worked as a Research Officer at the IMF Research Department between 2010 and 2012. His current research focuses on growth and innovation. He holds an MSc ETH in Mathematics from the Swiss Federal Institute of Technology of Zurich and an MA in International Economics from the Graduate Institute of Geneva.
Martin Brownbridge has served as the Economic Advisor to the Governor of the Bank of Uganda (BOU) since 2009, where he has helped the BOU to introduce its inflation targeting monetary policy framework, establish a Financial Stability Department, and implement the Basel III reforms. He has a PhD from the University of Manchester and has also worked in Belize, Ghana, the Gambia, and Tajikistan providing technical assistance on macroeconomics, monetary policy, fiscal policy, and financial regulation. He has published papers on bank regulation, bank resolution, fiscal policy, and monetary policy.
Luisa Charry is a Senior Economist at the African Department of the International Monetary Fund, contributing with technical assistance and policy papers on the modernization of monetary policy frameworks in developing countries. Previous to joining the IMF, Luisa worked at the Central Bank of Colombia (Banco de la República) for over ten years, where she was a member of the forecasting team focusing on model-based medium term macroeconomic forecasts. She was also a senior economist at Citigroup and Head of Equity Research in Valores Bancolombia.
Mai C. Dao is an economist at the IMF.
Pranav Gupta is an Economist in the Strategy, Policy and Review (SPR) department of IMF. He has wide-ranging experience in economic modelling and forecasting for emerging and developing countries. He has been part of IMF official missions to India, Mongolia, Rwanda, Sri Lanka, and Tanzania, where he assisted the Central Banks develop advanced macroeconomic forecasting models. Currently he is involved in the development and review of IMF policies and facilities for low-income countries and is doing research in areas of debt and macro-structural reforms. Prior to SPR, he was in the Research Department of IMF.
Louis Kasekende is Deputy Governor at the Bank of Uganda, a post he held during 1999–2002 and from 2009 to date. He was the Chief Economist of the African Development Bank (2006–09), where he played a leading role in the AfDB’s efforts to help African economies withstand the impact of the global economic crisis. Prior to that, he served as Alternate Executive Director and later as Executive Director for the World Bank Africa Group 1. He currently chairs the Board of the Africa Economic Research Consortium and is on the boards of the African Export Import Bank and the International Economics Association. He holds a PhD in Econometrics from the University of Manchester.
Douglas Laxton is the Division Chief of the Economic Modelling Division (EMD) in the Research Department of the IMF. He has worked with many central banks over the years developing Forecasting and Policy Analysis Systems to support Inflation-Forecast Targeting frameworks. Mr Laxton has published many papers on a large range of topics, including building multi-country models to support the Fund’s surveillance activities. More recently, he has been working on models with strong macro-financial linkages designed to support macro prudential policies. Prior to joining the IMF, Mr Laxton held numerous positions in the Research Department at the Bank of Canada (1981–93).
Bin Grace Li is a Senior Economist in the Research Department at the Inter national Monetary Fund. Her research is in the areas of Macro-Finance, Development Economics, and International Finance. Previously she was desk economist for the US and Canada covering economic issues of monetary policy and external sector. She was also an Adjunct Assistant Professor at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies (SAIS) teaching Development and Growth in 2009–10. She has published in peer-reviewed international journals on banking, development, commodity, and fiscal policy. She holds a PhD in Economics from the University of Chicago.
Giovanni Melina is an economist in the Research Department of the IMF. Before joining the Fund, he worked as an Associate Professor of Macroeconomics at City University London. He obtained a PhD in Economics from Birkbeck, University of London. He has made scientific contributions in the areas of Macroeconomics and Monetary and Fiscal Policy. His research focuses on understanding the sources and propagation of macroeconomic shocks, on the design of monetary and fiscal stabilization policies, and the link between macroeconomic policy and growth in developing countries.
Marshall Mills has worked at the International Monetary Fund since 2005, where he has been mission chief for Madagascar, Seychelles, and Togo in the African Department. He also worked on capital flows, trade, and programme conditionality in the Strategy, Policy and Review Department. Previously, he was the economist assigned to follow monetary policy in Ghana. Before the IMF, he worked at the US Treasury, including as Office Director for the Middle East; at the OECD; and at the US Office of Management and Budget. Mr Mills holds degrees from the University of North Carolina, Princeton University, and France’s Ecole nationale d’administration.
Tokhir Mirzoev is the IMF’s Resident Representative for Pakistan.
Peter Montiel is the Farleigh S. Dickinson Jr. ‘41 Professor of Economics at Williams College in Williamstown, Massachusetts. Professor Montiel has worked at the IMF and the World Bank; he has also served as a consultant for the Asian Development Bank and the InterAmerican Development Bank, as well as for several central banks. His research is on macroeconomic issues in developing countries. He has written several books, of which the most recent is the fourth edition of Development Macroeconomics, co-authored with Pierre-Richard Agenor of Manchester University and published by Princeton University Press, as well as a number of papers in professional journals.
R. Armando Morales is the IMF Resident Representative in Kenya since September 2014. Before moving to Nairobi, he worked for the IMF in different capacities, including as a mission chief for Financial Sector Assessment Pro grammes and technical assistance missions on monetary and financial issues for Latin American and African countries. Before joining the IMF, he worked in his home country Peru, including at the central bank; as a professor at Universidad del Pacífico; and chief economist at several think-tanks. He com pleted graduate studies at Northeastern University, Boston and at the Institute of World Economics in Kiel, Germany.
Stephen O’Connell is Gil and Frank Mustin Professor of Economics at Swarthmore College. Steve served as Chief Economist of the United States Agency for International Development (USAID) in 2014 and 2015. He co-ordinated the African Economic Research Consortium’s two-volume study The Political Economy of Economic Growth in Africa, 1960–2000, and was a Visiting Scholar at the IMF in 2013. Steve has worked closely with African central banks, the Centre for Study of African Economies, the International Growth Centre, and multilateral organizations on issues of macroeconomic policy in low-income Africa.
Catherine Pattillo is an Assistant Director in the Fiscal Affairs Department at the IMF. She was formerly Assistant Director in the Strategy, Policy and Review Department and formerly Chief of the Low-Income Countries Strategy Unit in the same department. Prior to that, she was a mission chief in the Western Hemisphere Department, and worked in the African and Research Departments. She earned a BA from Harvard University and PhD in economics from Yale University. Before joining the IMF, she was a fellow at Oxford University, Centre for the Study of African Economies and St Antony’s College. Her research interests and published articles are in the areas of growth, investment, debt, monetary frameworks and policies, exchange rates, aid, currency crises, macro-economic policies and economic development, gender, income distribution and labour markets, and firm performance in Africa.
Richard Peck is a doctoral student in Economics at Northwestern University. He has worked for Innovations for Poverty Action and the Federal Reserve Bank of New York. He holds a BA in Economics and Mathematics from Swarthmore College.
Vimal Thakoor is an economist at the International Monetary Fund.
Filiz Unsal is an economist at the International Monetary Fund, where she has worked at the Strategy, Policy and Review (SPR), Research, and Asia and Pacific Departments. Ms Unsal has also worked for the World Bank’s Financial Sector Advisory Center (FINSAC). She received her PhD in Economics in 2009, and MSc in Economics and Finance in 2006 from the University of York. Ms Unsal’s research interests include monetary and financial stability policies. She has published in several academic journals, including the International Journal of Central Banking, the IMF Economic Review, and Journal of Asian Economics, and has written several policy papers.
David Vavra is currently Managing Partner of OGResearch, a Prague-based macroeconomic consultancy specializing in macroeconomic modelling and forecasting. Prior to that David had worked for the International Monetary Fund and the Czech National Bank. He has advised dozens of central banks and national authorities, including in Russia, Turkey, Ukraine, and Serbia, on monetary policy issues, helping the authorities to move to flexible exchange rate regimes and implement inflation targeting frameworks. David is also an expert in macroeconomic modelling and forecasting. He has contributed to the forecasting and decision-making support systems in many central banks in Europe, Latin America, and Africa.
Jan Vlcek is an experienced macroeconomist with a research background. He works at the Czech National Bank as an advisor to the Board. Prior to his current position, he worked as a TA advisor at the IMF focusing on issues of macro-financial linkages and frictions. He contributed to the work of the MAG and LEI groups assessing effects of increasing capital requirements. He has also been working as an external expert for the IMF. He has largely benefited from his experiences with monetary policy implementation and forecasting at several central banks, including those of developing and low-income countries. His publications cover monetary policy, macro-financial linkages, macroeconomic forecasting, and modelling. He holds a PhD in Economics.
Hans Weisfeld is a deputy division chief in the IMF’s Strategy, Policy, and Review Department. He has recently helped develop further the methods used at the IMF to assess low-income countries’ vulnerability to macroeconomic and financial crises. In recent years, he has also helped prepare the IMF’s Reports on Macroeconomic Developments and Prospects in Low-Income Developing Countries. Mr Weisfeld holds a doctorate in economics from the Free University of Berlin and previously worked in the IMF’s European and African Departments.
Luis-Felipe Zanna is a senior economist at the IMF Institute for Capacity Development. Before joining the Fund, he worked as an economist in the US Federal Reserve Board. He has a PhD in Economics from the University of Pennsylvania and undergraduate and Master’s degrees from Universidad de Los Andes (Colombia). He has published articles on monetary and exchange rate policy rules in developing countries, including on macroeconomic stability and learnability issues and on managing aid and natural resource windfalls. His current research agenda is in the areas of monetary and fiscal policy in developing countries, focusing on model-based frameworks for policymaking.