An Estimated DSGE Model for Monetary Policy Analysis in Low-Income Countries
IMF Working Papers, December 1, 2007
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- An Estimated DSGE Model for Monetary Policy Analysis in Low-Income Countries
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Bibliographic details
- Authors: Shanaka J Peiris, Magnus Saxegaard
- Published: December 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451868456.001
Summary and main findings
- Evaluates monetary policy tradeoffs in low-income countries using a dynamic stochastic general equilibrium (DSGE) model estimated on data for Mozambique.
- Takes into account the sources of major exogenous shocks and level of financial development.
- Authors note: "To our knowledge this is a first attempt at estimating a DSGE model for Sub-Saharan Africa excluding South Africa."
- Key simulation result: "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."
Methodology and scope
- Model type: Dynamic stochastic general equilibrium (DSGE) model.
- Estimation sample/case: Data for Mozambique.
- Considerations included in the model: sources of major exogenous shocks; level of financial development.
Policy implications and recommendations
- Inflation targeting outperforms an exchange rate peg in stabilizing the real economy within the modeled low-income country context.
- Exchange rate peg associated with higher interest rate volatility, reducing its effectiveness for real economy stabilization compared with inflation targeting.
Subjects and keywords
- Subject: Exchange rates, Inflation, Inflation targeting, Monetary base, Open market operations
- Keywords: WP
Content in this bundle
- Appendix IV: Actual and One-Step Ahead Forecasts