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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:Institutions for Macroeconomic Stability in Africa
Author:Azam, Jean-PaulISNI
Periodical:Journal of African Economies
Volume:8 Supplement
Geographic terms:Subsaharan Africa
Subjects:monetary policy
economic conditions
international relations
Economics and Trade
External link:https://jae.oxfordjournals.org/content/8/suppl_1/6.full.pdf
Abstract:Macroeconomic instability is an ill-defined though useful concept for describing a state of macroeconomic malaise. This paper shows how the tools developed by the New Institutional Economics can be applied to the problems raised by macroeconomic instability in Africa. It develops a model suggesting that a focus on inflation is the right approach to macroeconomic instability by showing how the volatility of the real exchange rate and of the rate of inflation can be caused in fact by too high a level of inflation, which in turn can be explained by an expansionary fiscal policy or a cut in foreign aid. Several types of institutions can be devised to keep the rate of inflation low enough to be consistent with macroeconomic stability. The various solutions can be classified according to whether they resort to imposing restraints on central banking or provide incentives for conducting monetary policy in the optimal way. In this way, it is shown that the concept of macroeconomic instability can be directly related to the issue of excessive inflation, and then to the issue of the credibility of monetary policy. Some solutions to the credibility problem specific to developing countries are indicated, including administrative approaches such as the currency board system and the CFA zone system, as well as an IMF-type approach based on conditionality. Bibliogr., sum.