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
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...
free text keywords: jel:F41, jel:E52, jel:E63
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