Measuring Monetary Policy Stance in Sub-Saharan African Emerging and Frontier Markets
IMF Working Papers, August 15, 2025
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Bibliographic details
- Authors: Johanna Tiedemann, Olivier Bizimana, Shant Arzoumanian
- Published: August 15, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229016957.001
Overview
- Paper assesses the stance of monetary policy in eleven Sub-Saharan African (SSA) emerging and frontier market economies.
- Authors: Johanna Tiedemann, Olivier Bizimana, Shant Arzoumanian.
- Date: August 15, 2025.
- Purpose: Estimate neutral real interest rates using a range of methodologies and assess monetary policy stance and its consistency with broader financial conditions.
Methods and Constructed Indicators
- Estimated neutral real interest rates using a range of methodologies (methodologies not enumerated on the page).
- Constructed financial conditions indices (FCIs) for the analyzed economies.
- Measured monetary policy stance using the interest rate gap (policy rate minus estimated neutral real interest rate).
Key Findings
- Broadly declining trend in neutral real interest rates in most economies since the Global Financial Crisis, consistent with patterns observed in advanced and major emerging market economies.
- Significant heterogeneity in monetary policy stances—even during common global shocks.
- Relationship between interest rate gaps and FCIs strengthens during periods of highly accommodative or restrictive monetary stances.
- Contractionary monetary shocks tighten financial conditions more in economies that have adopted or are transitioning to inflation-targeting frameworks than in those operating under other regimes.
Financial Conditions and Transmission
- FCIs are used to analyze consistency between intended monetary policy stance and broader financial conditions.
- The interest rate gap-FCI relationship intensifies in extreme monetary stance episodes (highly accommodative or highly restrictive).
- Economies with inflation-targeting frameworks or in transition exhibit stronger tightening of financial conditions following contractionary monetary shocks.
Heterogeneity and Regime Differences
- Documented substantial cross-country heterogeneity in monetary policy stances across the eleven SSA emerging and frontier markets.
- Policy transmission differs by monetary regime: inflation-targeting adopters or transitioners experience stronger financial tightening from contractionary shocks relative to economies under other regimes.
Policy Implications (as presented)
- Monitoring neutral real interest rates is important for assessing monetary policy stance in SSA emerging and frontier markets.
- Integration of FCIs with interest rate gap analysis can improve assessment of consistency between intended policy stance and broader financial conditions.
- Attention to monetary regime (notably inflation-targeting adoption or transition) is important because contractionary shocks have stronger tightening effects on financial conditions under these regimes.
IMF Working Paper — Johanna Tiedemann, Olivier Bizimana, and Shant Arzoumanian; August 15, 2025; Working Paper No. 2025/160; DOI: https://doi.org/10.5089/9798229016957.001
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