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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Dollars for Sale: Exchange Rate Policy and Inflation in Africa
Author:Azam, Jean-PaulISNI
Periodical:World Development
Geographic terms:Guinea
Subjects:monetary policy
exchange rates
Economics and Trade
Politics and Government
External link:https://doi.org/10.1016/S0305-750X(99)00088-1
Abstract:In Africa, the government is often the main provider of foreign exchange, acquired through aid or via a nationalized mining sector, although a parallel market is also usually active. This paper analyses a simple analytical model for discussing the appropriate pricing policy that should be adopted when the government is the main provider of foreign exchange to the economy. The model is a variant of the type of models initiated by T.J. Sargent and N. Wallace (1973), where the interplay between the monetary financing of the fiscal deficit, the demand for money, and rational expectations, determine inflation. The paper first examines exchange rate policy and inflation in Nigeria during the period 1980-1993 and then uses the model to offer an interpretation of the Nigerian data. The case of Guinea during the period 1986-1996 is used to illustrate the main policy conclusion of the paper, namely that the official exchange rate can be profitably used as a nominal anchor of a typical African economy, provided a low rate of crawl is selected, whose management is delegated to an independent central bank with a conservative governor, la K.A. Rogoff (1985). App., bibliogr., ref., sum.