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Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Ghana, South Africa and the WAEMU

Author

Listed:
  • Fadia Al Hajj
  • Gilles Dufr??not,
  • Kimiko Sugimoto
  • Romain Wolf
Abstract
The aim of this paper is to examine the monetary policy actions through which the central banks in the Sub-Saharan African countries have searched to eliminate the negative impacts of the shocks facing their economies. We compare two types of monetary policy regimes: a currency board regime (in the CFA zone countries) and an inflation targeting policy regime (in Ghana and South Africa). We compare the properties of both policies when the central banks respond to three negative shocks hitting the economies: a recessionary demand shock, a supply shock increasing inflation and a negative fiscal shock. We propose an FPAS model (forecasting and monetary policy analysis system) that extends the usual FPAS models used in the literature to evaluate the impact of several policies in response to different types of exogenous shocks. We find that both policies are inappropriate to help the economies exiting from the effects of negative demand shocks (the adjustment relies mainly on fiscal policy), both are essential when negative shocks to primary balance occur (fiscal policy aggravates the negative effects of the shocks), while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation.

Suggested Citation

  • Fadia Al Hajj & Gilles Dufr??not, & Kimiko Sugimoto & Romain Wolf, 2013. "Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Ghana, South Africa and the WAEMU," William Davidson Institute Working Papers Series wp1062, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2013-1062
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    References listed on IDEAS

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    Cited by:

    1. Ikechukwu Kelikume & Olaniyi Evans, 2015. "Inflation Targeting As A Possible Monetary Framework For Nigeria," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(5), pages 71-81.
    2. Sodokin, Koffi & Kouwonou, Yao & Kodjovi Couchoro, Mawuli & Amadou, Akilou, 2024. "Monetary policy, threshold of profitability and dynamics of private investment in the West African Economic and Monetary Union," Journal of International Money and Finance, Elsevier, vol. 143(C).

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    More about this item

    Keywords

    inflation target; currency board; African countries;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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