Taylor Visits Africa

December 9, 2015

Preview Citation

Format: Chicago

Carlos Goncalves. Taylor Visits Africa, (USA: International Monetary Fund, 2015) accessed December 24, 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

Many low-income countries do not use interest rates as their main monetary policy instrument. In East Africa, for instance, targeting money aggregates has been pretty much the rule rather than the exception. Nevertheless, these targets are seldom met and often readjusted according to the economic environment. This opens up 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 that these self-styled "monetary targeters" are respecting the Taylor Principle, that is are on average increasing nominal interest rates more than proportionally to inflation. Nevertheless, 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. More surprisingly, they are smaller than South Africa’s, the continent’s sole long-term inflation targeter.

Subject: Financial services, Inflation, Inflation targeting, Interbank rates, Monetary policy, Output gap, Prices, Production

Keywords: Africa, Central bank, Deviations from the Taylor Rule, Inflation, Inflation deviation, Inflation goal, Inflation target, Inflation targeting, Interbank rates, Interest rate equation, Interest rates instrument, Monetary policy tightness, Neutral interest rates, Output gap, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/258
Stock No:

WPIEA2015258
ISBN:

9781513560540
ISSN:

1018-5941

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