Post-crisis Monetary Policy Frameworks in sub-Saharan Africa

Abstract

Most of the monetary policy frameworks which use a domestic anchor for monetary policy in sub-Saharan Africa (SSA) employ quantitative money targets. Although these frameworks proved useful in reducing inflation in SSA, they are not well suited to the discretionary fine tuning of monetary policy. Monetary policy frameworks should be reformed in the post-crisis period, especially in the 'frontier markets' of SSA, where the need for activist demand management will grow in line with economic development and the integration of domestic financial sectors into global markets. Reforms should include adopting a broader set of policy objectives in addition to inflation, replacing broad money as the intermediate target with a more sophisticated set of indicators and forecasts and reform of the operating target. In essence, central banks should introduce a form of inflation targeting lite. This should be complemented by measures to strengthen the transmission mechanism of monetary policy.

Monetary Aggregates Targeting, Inflation Targeting and Inflation Stabilization in Ghana

“…However, large swings in inflation were recorded as the annual inflation rate fell from 122.87 per cent in 1983 to 37.26 per cent in 1990, further eased to 10.06 per cent in 1992, increased to 59.45 per cent in 1995 and later dropped to 32.91 per cent in 2001. This seems to support the claim by Kasekende and Brownbridge () that quantitative money targets are not suitable to the discretionary fine‐tuning of monetary policy.…”

“…There is the need to conduct comparative analysis of the different monetary policy regimes that have been operated since the 1980s. As Kasekende and Brownbridge () have argued, it is crucial to determine a suitable anchor to the fine‐tuning of monetary policy.…”

Can Interactions between Financing and Investment Activities Have Dissimilar Effects on Inflation and Exchange Rates?

“…Given most political economies within Africa can be regarded as small in relation to their trade partners, my findings indicate the adoption of a managed floating or hybrid exchange rate regime does not necessarily imply inability to achieve inflation stability; that is, managed properly, hybrid exchange rate regimes can be robust monetary policy tools for achieving inflation stabilization within Africa. In line with findings in studies such as Anyanwu (2006), Heintz and Ndikumana (2011), Kasekende andBrownbridge (2011), Lungu (2008), or Saibu and Oladeji (2008), then, my findings provide evidence that the determination of monetary policies best suited to African economies requires an understanding of the economic structures that govern investment or production activities.…”

The impact of weather anomalies on migration in sub-Saharan Africa

“…However, subSaharan African countries, like the Euro area countries, do not follow the Taylor rule; they focus only on fighting inflation. The exogeneity of the money supply and its correlation to GDP in sub-Saharan Africa is confirmed in Kasekende and Brownbridge [49], 17 who write that ''[t]he implementation of monetary targeting frameworks in sub-Saharan Africa has, in practice, paid little attention to the stabilization of output.'' As a result, monetary policy in sub-Saharan Africa can be viewed as chiefly monetarist in nature.…”