Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Sub‐Saharan Africa

Abstract

ACLNInternational audienceThe paper examines the monetary policy actions through which central banks in sub-Saharan Africa have tried to eliminate the negative impacts of the shocks facing their economies. We compare two different monetary policy regimes: a currency board regime (in the CFA zone) and an inflation targeting policy regime (Ghana and South Africa) when central banks respond to demand, supply, and fiscal shocks. We extend the usual forecasting and policy analysis system models to replicate the economic features of these economies during the period 2002–12 and to evaluate the impact of several policies in response to these shocks. We find that both policies are inappropriate in helping the economies escape from the effects of negative demand shocks, both are essential when negative shocks to primary balance occur, while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation

Does Monetary Policy Respond to Macroeconomic Shocks? Evidence from Indonesia

“…Moreover, the study of how the monetary policy response is generally associated with a supply shock or a demand shock separately. Research conducted by Al Hajj et al (2015) distinguishes between supply shock, demand shock, and fiscal shock in analyzing the three shocks to monetary policy. Research conducted by Natal (2012) relates the response of monetary policy to oil price shocks.…”