Taylor Visits Africa

IMF Working Papers, December 9, 2015

Source details

Canonical URL

Taylor Visits Africa

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Carlos Goncalves
• Published: December 9, 2015
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781513560540.001

Summary and main findings

• Many low-income countries do not use interest rates as their main monetary policy instrument.
• In East Africa, targeting money aggregates "has been pretty much the rule rather than the exception."
• Money aggregate targets are seldom met and often readjusted according to the economic environment, opening the possibility that central banks are de facto pursuing a strategy more akin to a Taylor Rule.
• Estimations of small-scale models for Kenya, Uganda and Tanzania suggest:
  • These self-styled "monetary targeters" are respecting the Taylor Principle, that is are on average increasing nominal interest rates more than proportionally to inflation.
  • Steep deviations from the Taylor Rule have taken place in Kenya and Tanzania.
  • In Uganda, these errors are much smaller, in fact similar in size to Taylor Rule deviations found for Brazil.
  • Uganda’s deviations are smaller than South Africa’s, the continent’s sole long-term inflation targeter.

Methodology and scope

• Analysis based on estimations of small-scale models for Kenya, Uganda and Tanzania.
• Focus on de facto policy behavior where explicit monetary targeting exists but targets are frequently missed or adjusted.

Policy-relevant observations

• Adjustments and frequent misses of money-aggregate targets imply that central banks that nominally target aggregates may effectively follow interest-rate based rules.
• Respecting the Taylor Principle indicates nominal interest rates are increased more than proportionally to inflation on average in the sampled East African countries.
• Large deviations in some countries (Kenya and Tanzania) point to episodes of significant departure from rule-like behavior; smaller deviations in Uganda suggest relative policy consistency comparable to Brazil and better than South Africa in the sample.

Content in this bundle

• Taylor Visits Africa; by Carlos Eduardo Goncalves; IMF Working Paper WP/15/258; December 2015
  • Taylor Visits Africa; by Carlos Eduardo Goncalves; IMF Working Paper WP/15/258; December 2015 (Markdown version)
  • Taylor Visits Africa; by Carlos Eduardo Goncalves; IMF Working Paper WP/15/258; December 2015 (PDF)