An Estimated DSGE Model for Monetary Policy Analysis in Low-Income Countries

Author/Editor:

Shanaka J Peiris ; Magnus Saxegaard

Publication Date:

December 1, 2007

Electronic Access:

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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:

This paper evaluates monetary policy-tradeoffs in low-income countries using a dynamic stochastic general equilibrium (DSGE) model estimated on data for Mozambique taking into account the sources of major exogenous shocks, and level of financial development. To our knowledge this is a first attempt at estimating a DSGE model for Sub-Saharan Africa excluding South Africa. Our simulations suggests that a exchange rate peg is significantly less successful than inflation targeting at stabilizing the real economy due to higher interest rate volatility, as in the literature for industrial countries and emerging markets.

Series:

Working Paper No. 2007/282

Subject:

Exchange rates Inflation Inflation targeting Monetary base Open market operations

English

Publication Date:

December 1, 2007

ISBN/ISSN:

9781451868456/1018-5941

Stock No:

WPIEA2007282

Pages:

31

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