publication . Article . 2003

Tight Money, Real Interest Rates, and Inflation in Sub-Saharan Africa

Edward F. Buffie;
Open Access
  • Published: 01 Jan 2003 Journal: IMF Staff Papers, volume 50, issue 1, pages 6-6
Abstract
The consequences of tight monetary policy are analyzed in an optimizing currency-substitution model of a small, open economy that operates under an open capital account and a flexible exchange rate. There is a reasonably good fit between the dynamics generated by the model and the stylized facts in the tight-money episodes that occurred in Kenya in 1993 and Nigeria in 1989-91. The study's results shed light on two issues: why tight money has provoked stupendous increases in inflation and the real interest rate in some episodes, and whether tight money is a foolish, unsustainable policy that always worsens the fiscal deficit and raises the inflation rate in the l...
Subjects
free text keywords: jel:F41, jel:E52, jel:E63
24 references, page 1 of 2

Agénor, Pierre-Richard, and Peter J. Montiel, 1996, Development Macroeconomics (Princeton, New Jersey: Princeton University Press).

Ajayi, Simeon I., 1997, “An Analysis of External Debt and Capital Flight in Severely Indebted Low-Income Countries in Sub-Saharan Africa,” IMF Working Paper 97/68 (Washington: International Monetary Fund). [OpenAIRE]

Blundell, R., 1988, “Consumer Behavior: Theory and Empirical Evidence-A Survey,” Economic Journal, Vol. 98 (March), pp. 16-65. [OpenAIRE]

Calvo, Guillermo A., 1988, “Servicing the Public Debt: The Role of Expectations,” American Economic Review, Vol. 78 (September), pp. 647-61.

Central Bank of Kenya, 1993, Economic Report for the Year Ended June 30, 1993 (Nairobi).

---, 1998, Statistical Abstract (Nairobi).

Central Bank of Nigeria, 1990, Economic and Financial Review, Vol. 28.

Collier, Paul, Anke Hoeffler, and Catherine Pattillo, 1999, “Flight Capital as a Portfolio Choice,” World Bank Policy Research Working Paper No. 2066 (Washington).

Deaton, Angus, 1992, Understanding Consumption (Oxford: Clarendon Press).

---, and John Muellbauer, 1980, Economics and Consumer Behavior (New York: Cambridge University Press, 1980).

Drazen, Allan, 1985, “Tight Money and Inflation: Further Results,” Journal of Monetary Economics, Vol. 15 (January), pp. 113-20.

Giovannini, Alberto, and Bart Turtelboom, 1992, “Currency Substitution,” NBER Working Paper No. 4232 (Cambridge, Massachusetts: National Bureau of Economic Research).

Hadjimichael, Michael T., Thomas Rumbaugh, and Eric Verreydt, 1992, The Gambia: Economic Adjustment in a Small Open Economy, IMF Occasional Paper No. 100 (Washington: International Monetary Fund). [OpenAIRE]

Kamin, Steven B., and Neil R. Ericsson, 1993, “Dollarization in Argentina,” International Finance Discussion Paper No. 460 (Washington: Board of Governors of the Federal Reserve System).

Liviatan, Nissan, 1984, “Tight Money and Inflation,” Journal of Monetary Economics, Vol. 13 (January), pp. 5-15.

24 references, page 1 of 2
Powered by OpenAIRE Open Research Graph
Any information missing or wrong?Report an Issue