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Fiscal and Monetary Anchors for Price Stability: Evidence from Sub-Saharan Africa

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  • International Monetary Fund

Abstract

The paper presents a model of fiscal dominance with borrowing constraints, and provides evidence for a large number of sub-Saharan African countries on the relative importance of fiscal and monetary determinants of inflation. Based on the dynamic response of inflation to different shocks, including nominal public debt, results show that a number of SSA countries were characterized throughout the period 1980-2005 either by chronic fiscally dominant regimes, with weak or no response of primary surpluses to public debt; or by a consistent adoption of a monetary dominant regime. However, a number of countries were also characterized by lack of a clear monetary and fiscal policy regime. The study also finds that changes in nominal public debt affect price variability via aggregate demand effects, suggesting that fiscal outcomes could be a direct source of inflation variability, as predicted by the fiscal theory of the price level.

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  • International Monetary Fund, 2008. "Fiscal and Monetary Anchors for Price Stability: Evidence from Sub-Saharan Africa," IMF Working Papers 2008/121, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/121
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    2. Samuel Bates & Cheikh Tidiane Ndiaye, 2014. "Economic Growth from a Structural Unobserved Component Modeling: The Case of Senegal," Economics Bulletin, AccessEcon, vol. 34(2), pages 951-965.
    3. Hostland, Douglas & Giugale, Marcelo M., 2013. "Africa's macroeconomic story," Policy Research Working Paper Series 6635, The World Bank.
    4. Beck-Friis, Peder & Willems, Tim, 2017. "Dissecting fiscal multipliers under the fiscal theory of the price level," European Economic Review, Elsevier, vol. 95(C), pages 62-83.
    5. Djelassi, Mouldi & Essid, Lobna, 2012. "Le niveau des prix en Tunisie est-il déterminé par la politique budgétaire?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 88(2), pages 231-256, Juin.
    6. Dirk Bursian, 2017. "Solving RE models with discontinuous policy rules – an application to minimum wage setting in Germany," Applied Economics Letters, Taylor & Francis Journals, vol. 24(15), pages 1121-1126, September.
    7. Obinyeluaku, Moses & Viegi, Nicola, 2009. "How does fiscal policy affect monetary policy in the Southern African Community (SADC)?," MPRA Paper 15372, University Library of Munich, Germany.
    8. Benedicte Vibe Christensen, 2011. "Have monetary transmission mechanisms in Africa changegd?," BIS Papers chapters, in: Bank for International Settlements (ed.), Central banking in Africa: prospects in a changing world, volume 56, pages 37-61, Bank for International Settlements.

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