Fiscal and Monetary Anchors for Price Stability: Evidence from Sub-Saharan Africa

May 1, 2008

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Fiscal and Monetary Anchors for Price Stability: Evidence from Sub-Saharan Africa, (USA: International Monetary Fund, 2008) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper presents a model of fiscal dominance with borrowing constraints, and provides evidence for a large number of sub-Saharan African countries on the relative importance of fiscal and monetary determinants of inflation. Based on the dynamic response of inflation to different shocks, including nominal public debt, results show that a number of SSA countries were characterized throughout the period 1980-2005 either by chronic fiscally dominant regimes, with weak or no response of primary surpluses to public debt; or by a consistent adoption of a monetary dominant regime. However, a number of countries were also characterized by lack of a clear monetary and fiscal policy regime. The study also finds that changes in nominal public debt affect price variability via aggregate demand effects, suggesting that fiscal outcomes could be a direct source of inflation variability, as predicted by the fiscal theory of the price level.

Subject: Domestic debt, Fiscal policy, Inflation, Monetary base, Public debt

Keywords: Exchange rate, FD regime, Monetary policy, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/121
Stock No:

WPIEA2008121
ISBN:

9781451869811
ISSN:

1018-5941

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