Woodford Goes to Africa

WEF Working Paper No. 0029

31 Pages Posted: 2 Nov 2007

See all articles by Kang Yong Tan

Kang Yong Tan

Australian National University (ANU) - Research School of Pacific and Asian Studies (RSPAS)

David Vines

University of Oxford - Balliol College - Department of Economics; Australian National University (ANU); Centre for Economic Policy Research (CEPR)

Date Written: July 2007

Abstract

This paper analyses the effects of inflation shocks, demands shocks, and aid shocks on low-income, quasi-emerging-market economies, and discusses how monetary policy can be used to manage these effects. We make use of a model developed for such economies by Adam et al. (2007). We examine the effects of four things which this model features, which we take to be typical of such economies. These are: the existance of a tradeables / non-tradeables production structure, the fact that international capital movements are - at least initially - confined to the effects of currency substitution of monetary policy, and the pursuit, in some countries, of a fixed exchange rate. We then modify the model to examine the effect on such economies of three major changes, changes which we make to be part of the transition by such economies towards more fully-interest-parity comes to hold, a move to floating exchange rates, and the replacement of fixed stocks of financial aggregates by the pursuit of a Taylor rule in the conduct of monetary policy.

Keywords: currency substitution, emerging market macroeconomics, interactions between fiscal and monetary policy, Taylor rule

JEL Classification: E5, E61, O11

Suggested Citation

Tan, Kang Yong and Vines, David, Woodford Goes to Africa (July 2007). WEF Working Paper No. 0029, Available at SSRN: https://ssrn.com/abstract=1026339 or http://dx.doi.org/10.2139/ssrn.1026339

Kang Yong Tan (Contact Author)

Australian National University (ANU) - Research School of Pacific and Asian Studies (RSPAS) ( email )

Division of Economics, RSPAS
Canberra, Australian Capital Territory 0200
Australia

David Vines

University of Oxford - Balliol College - Department of Economics ( email )

Manor Road
Oxford, OX1 3BJ, Oxfordshire OX13UQ
United Kingdom
+44 1865 271 067 (Phone)
+44 1865 271 094 (Fax)

Australian National University (ANU)

Canberra, Australian Capital Territory
Australia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
62
Abstract Views
2,078
Rank
747,505
PlumX Metrics