|
on Monetary Economics |
| By: | Haavio, Markus; Heikkinen, Joni; Jalasjoki, Pirkka; Kilponen, Juha; Paloviita, Maritta |
| Abstract: | We study the evolution of the European Central Bank's (ECB) monetary policy since July 2021, following the adoption of a new strategy and amid a period of volatile inflation. Utilizing text analysis, we assess changes in the general sentiment of the ECB's communication. Additionally, we employ topic modeling to develop an inflation focused tone index. By integrating these tone indices with real-time data from monetary policy meetings, we directly estimate the ECB's loss function. Our findings indicate a recent shift towards a more inflation-centered communication approach by the ECB. Preliminary results also suggest that the ECB's policy preferences have become more symmetric since July 2021. |
| Keywords: | asymmetric loss function, central bank communication, textual analysis, topic model, optimal monetary policy |
| JEL: | E31 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:313643 |
| By: | Falk Laser (ABC economics, Berlin); Alexander Mihailov (Department of Economics, University of Reading); Jan Weidner (Federal Ministry for Economic Affairs and Energy, Berlin) |
| Abstract: | This paper fills a gap in the data by country -- and the corresponding comparative analysis of patterns and trends over the past quarter century -- in the composition of foreign exchange (FX) reserves and monetary gold in total international reserves, typically held by central banks. The monetary mystique since the 1980s and the related unwillingness of central banks to disclose the composition of their official reserves until about the turn of the millennium have made such an area of study a terra incognita to the wider profession. Our ambition with this paper is to cast light, also providing the data online, on the relative importance and reshufflings of the US Dollar, the Euro, the Japanese Yen, the British Pound, the Australian Dollar, the Canadian Dollar, the Chinese Yuan or Renminbi and monetary gold as international reserves in the recent times of crises, wars and geopolitical reconfigurations. We find that the US Dollar retains its dominance inherited from the Bretton Woods system, but the Euro and perhaps the Yuan may increase their reserve shares in the decade ahead, with a return to gold in official reserves already obvious since at least the Global Financial Crisis. Our rich and diverse dataset, and the insights from it we highlight, is the most up-to-date and comprehensive overview of the field, covering 7 major currencies and 64 countries in terms of FX shares, and a subset of 50 for which we also provide the gold shares, in an unbalanced panel since the late 1990s. |
| Keywords: | currency denomination of foreign exchange reserves, central banks, gold shares in total international reserves, visualizations by country and region, stylized facts and key insights |
| JEL: | F31 F32 F33 F41 F62 N40 |
| Date: | 2025–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:rdg:emxxdp:em-dp2025-01 |
| By: | Ginters Buss (Latvijas Banka); Guido Traficante (European University of Rome) |
| Abstract: | This paper studies monetary policy in a New Keynesian model with incomplete information regarding the persistence of cost-push shocks. The central bank and the private sector gradually learn about the persistence of the shock as it propagates through the economy. The central bank adopts a look-through policy in response to temporary cost-push shocks; otherwise, it follows a Taylor rule. If agents initially believe the cost-push shock to be temporary, while the true shock is persistent, it takes some time for the central bank, acting initially under an incorrect assumption, to realise its mistake and switch to monetary tightening. As a result, the actual inflation is higher than in a complete information case. Data-dependent discretionary early liftoff strategies can partially mitigate the effects of the initial policy misjudgment. Contrary to the full-information conditions, the findings cast doubt on the effectiveness of look-through policies in environments of incomplete information, irrespective of the actual persistence of the cost-push shock. |
| Keywords: | monetary policy, imperfect information, cost-push shock, high inflation |
| JEL: | D83 E17 E31 E47 E52 |
| Date: | 2025–03–05 |
| URL: | https://d.repec.org/n?u=RePEc:ltv:wpaper:202502 |
| By: | Giovanardi, Francesco; Kaldorf, Matthias |
| Abstract: | We study optimal monetary policy in an analytically tractable New Key-nesian DSGE-model with an emission externality. Empirically, emissions are strongly pro-cyclical and output in the flexible price equilibrium overreacts to productivity shocks, relative to the efficient allocation. At the same time, output under-reacts relative to the flexible price allocation due to sticky prices. Therefore, it is not optimal to simultaneously stabilize inflation and to close the natural output gap, even though this would be feasible. Real externalities affect the LQ-approximation to optimal monetary policy and we extend the analysis of Benigno and Woodford (2005) to inefficient flexible price equilibria. For central banks with a dual mandate, optimal monetary policy places a larger weight on output stabilization and targets a non-zero natural output gap, implying a higher optimal inflation volatility. |
| Keywords: | Optimal Monetary Policy, Carbon Emissions, Output Gap, Central Bank Loss Function, Phillips Curve |
| JEL: | E31 E58 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:313014 |
| By: | Emekaraonye, Chukwunenye Ferguson; Dick, Emmanuel Ikechukwu; Agu, Chukwuma |
| Abstract: | Using a recursive structural vector autoregressive model and quarterly data from 1986Q1 to 2019Q4, this study examines the transmission mechanism from monetary policy instruments, specifically the monetary policy rate, base money, and nominal exchange rate, to outcome variables (prices and credit to the private sector) in Nigeria. The data showed structural breaks in 2004Q2, 2009Q3 and 2014Q3, which coincided with the 2004 banking consolidation, the 2009 Sanusi-led regulatory measures and the appointment of Godwin Emefiele as the Governor of the Central Bank of Nigeria in 2014. Accordingly, policy instrument transmission tests were conducted along three scenarios 2004, 2009 and 2014 to evaluate the changes that may have been imposed on the policy transmission mechanism by the reforms. Under the 2004 consolidation scenario, the reforms strengthened only the interest rate anchor (monetary policy rate), causing it to be effective in influencing credit to the private sector (CPS). Innovations in other monetary policy instruments led to insignificant responses in the outcome variables. Even base money, which previously impacted both prices and credit to the private sector, became insignificant and ineffective after 2004. Sanusis regime did not strengthen the impact of any of the monetary policy instruments on prices and credit to the private sector. Base money, that impacted outcome variables in some periods before 2009, became insignificant thereafter. Similarly, the 2014 development and sectoral support programmes under Emefiele also did not strengthen monetary policy instruments. Overall, the study affirms the position that monetary policy reforms may not always strengthen policy instruments to regulate or influence prices and credit to the private sector, especially when the transmission is indirect. |
| Date: | 2024–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:db533685-8639-4e1e-9f2b-01f377dda41b |
| By: | Eregha, Perekunah B. |
| Abstract: | The question whether domestic prices respond to either official exchange rate or parallel exchange rate movements is a key research issue, especially in an oil-dependent developing country such as Nigeria that has rising fiscal pressures and a vibrant parallel foreign exchange market. From the monetary authority perspective, it is also imperative to know if prices respond symmetrically and/or asymmetrically to both official and parallel exchange rate movements. Consequently, this study examines the response of domestic prices to both official and parallel exchange rate movements for the period POLICY BRIEF Symmetric and Asymmetric Responses of Consumer Prices Index Inflation to Exchange Rates in Nigeria Perekunah B. Eregha October 2023 / No.801 2 Policy Brief No.801 1995Q12019Q1 using Shin et. als (2014) non-linear ARDL approach. The results show that the magnitude of the effect of parallel exchange rates on domestic prices is more than that of the official exchange rates effect in a symmetric case. However, only domestic prices respond differently to the depreciation and appreciation of the official exchange rate in Nigeria. Consequently, the government needs to ensure some level of fiscal austerity, and possibly exchange rate unification when the premium grows too big, if the intention is to insulate domestic prices from fiscal pressures. Also, the Central Bank of Nigeria needs to be aware of a possible asymmetric relationship in their decisions to ensure price stability so that it does not distort monetary policy effects. |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:118839d1-3da5-46f5-a41d-d795ba20bde3 |
| By: | Okello, Jimmy Apaa |
| Abstract: | The increased use of mobile money for cross-border transfers can lower the costs of cross-border remittances. The reduction in costs in turn can spur additional increases in remittances as it frees up the incomes of the senders. This study first estimated the remittance elasticity to cost by applying the pooled mean group method to quarterly panel data of three country sources of remittances to Uganda for the period 2013Q1- 2022Q4. The results showed that remittances are highly elastic to costs. This implies that a reduction in costs can spur larger remittances than is currently observed. The study then created two regimes (one with lower and another with higher growth of remittances) in which we assess the impact of remittances on monetary policy effectiveness. We use the local projection model on quarterly data for the period 2002Q3-2023Q1. The results showed that the responses of output gap, inflation, and policy rates to shock in monetary policy are broadly similar in magnitude and direction across both regimes. However, the policy rate and inflation responded sluggishly in the regime with higher growth of remittances, which suggests that in this regime, monetary policy is not as potent as it would be in the regime with lower remittance growth. Thus, in a regime with higher remittance growth, the case for an independent monetary policy is weakened. Thus, in this regime, for a central bank to credibly commit to an inflation target, it must adopt a fixed exchange rate system (or variants therein). |
| Date: | 2024–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:03497339-fe62-48ef-b7a2-252d7a9b49fe |
| By: | Andrade, Philippe (Federal Reserve Bank of Boston); Gautier, Erwan (Banque de France - Centre de Recherche); Mengus, Eric (HEC Paris); Moench, Emanuel (Frankfurt School of Finance & Management; Centre for Economic Policy Research (CEPR)); Schmidt, Tobias (Deutsche Bundesbank - Research Center) |
| Abstract: | We study beliefs about fiscal dominance in a survey of German households. We first use a randomized controlled trial to identify how fiscal news impact individual debt-to-GDP and inflation expectations. We document that the link between debt and inflation crucially depends on individuals’ views about the fiscal space. News leading individuals to expect higher debt-to-GDP ratios make them more likely to revise upward their inflation expectations. These average effects are due to individuals who think that fiscal resources are more stretched than others. In contrast, individuals who think there is fiscal space do not associate debt with inflation. We then rationalize these results in a New Keynesian model where agents have heterogeneous beliefs about the fiscal space. We show that the heterogeneity of beliefs implies a policy tradeoff for the central bank. Agents who expect fiscal dominance in the future exert upward pressure on inflation. An active central bank may chose to partially tolerate this higher inflation due to the real costs of completely stabilizing prices. |
| Keywords: | fiscal and monetary policy; heterogeneous beliefs; ran- domized control trial; survey data; Inflation expectations |
| JEL: | C83 D84 E31 E63 |
| Date: | 2025–01–14 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1535 |
| By: | Javier Bianchi; Louphou Coulibaly |
| Abstract: | What is the optimal monetary policy response to tariffs? This paper explores this question within an open-economy New Keynesian model and shows that the optimal monetary policy response is expansionary, with inflation rising above and beyond the direct effects of tariffs. This result holds regardless of whether tariffs apply to consumption goods or intermediate inputs, whether the shock is temporary or permanent, and whether tariffs address other distortions. |
| Keywords: | Tariffs; Inflation; Optimal monetary policy |
| JEL: | F41 E24 E44 E52 F13 |
| Date: | 2025–03–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmwp:99705 |
| By: | Schmidt, Tobias |
| Abstract: | This paper examines the pivotal role of journalists in shaping economic narratives, focusing on inflation coverage in Germany in 2022. While the media's influence on disseminating economic narratives is widely acknowledged, little research has focused on journalists, the agents responsible for content production. Using a mixed-method approach combining survey data with media content analysis, this study investigates how economic journalists explain inflation causes and persistence compared to professional economists. The results from surveys conducted during peak inflation (10.4%) show that journalists hold less optimistic views on inflation persistence than experts and that they are more likely to attribute inflation to specific protagonists, particularly the European Central Bank (ECB) and corporate profit-seeking. The ECB's role emerges as an especially contentious issue among journalists, revealing significant disagreement within the profession. Analysis of media coverage reveals notable alignment between journalists' perceptions and actual content, especially regarding the emphasis placed on the ECB's role-despite experts considering monetary policy a relatively minor factor. While this might suggest that journalists' personal narratives influence media coverage, the study's design precludes causal claims. The findings underscore the need for further research into how journalists' personal narratives impact public discourse on economic matters. |
| Keywords: | media, narratives, journalism, inflation |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:docmaw:313658 |
| By: | Wamalwa, Peter |
| Abstract: | This paper aims to establish optimal response of monetary policy to output, inflation, and asset price volatility in small open economies of Kenya and Ghana. The paper estimates a monetary policy response function for inflation, asset prices, and output volatility developed from a dynamic stochastic general equilibrium model using quarterly data from 2000 to 2018. The analysis shows that monetary policy accord inflation greatest weight compared to output and asset prices. However, there are differences in the sensitivity of monetary policy across the economies, and hence price, output, and welfare outcomes. The prioritization of inflation stifles output growth more in Ghana than in Kenya due to high interest rate. Despite monetary policy prioritizing inflation in Ghana, average inflation is higher compared to Kenya. Results from dynamic optimization show that a consistent intervention in the economy to stabilize inflation, output, nominal exchange rate, and asset prices, achieves higher welfare. |
| Date: | 2024–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:428176bd-f18b-4894-b68b-8b8c212a4eb6 |
| By: | Phiri, Sydney Chauwa; Chisha, Keegan; Chipili, Jonathan M. |
| Abstract: | Traditional macroeconomic fundamentals have challenges in explaining nominal exchange rate movements at short horizons partly due to their inability to capture expectations. Using data from the Bank of Zambia, and an order flow-based microstructure model within a vector autoregressive (VAR) framework, this study establishes that order flows in the foreign exchange market in Zambia contain useful information in explaining daily exchange rate movements for the period 20162020. Daily order flows of four out of 18 different customer types are found to contain information content with the interbank, manufacturing, households, as well as wholesale and retail being the most important. Cross-market order flows contain less information to explain daily movements in the kwacha/US dollar exchange rate. The policy lesson from the empirical results point to the central bank paying attention to the demand requirements by the four identified segments of the foreign exchange market that can potentially drive up the exchange rate and generate inflationary pressures. |
| Date: | 2024–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:63fd7d4f-af52-4d1a-84f4-d7c88a11c72f |
| By: | Temurbek Boymirzaev (Central Bank of Uzbekistan) |
| Abstract: | This study investigates the application of Factor-Augmented Vector Autoregression (FAVAR) and Bayesian Vector Autoregression (BVAR) models for inflation forecasting. FAVAR models deal with high-dimensional data by extracting latent factors from extensive macroeconomic indicators, while BVAR models incorporate prior distributions to enhance forecast stability and precision in data-limited environments. Employing a comprehensive dataset of Uzbekistan-specific inflation determinants, we conduct an empirical assessment of both models, examining their predictive accuracy. Findings from this research aim to optimize inflation forecasting methodologies, providing the Central Bank of Uzbekistan with robust, data-driven insights for improved policy formulation. |
| Keywords: | FAVAR; BVAR; inflation forecast; forecast combination |
| JEL: | E30 E31 E37 |
| Date: | 2025–02–27 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp06-2025 |
| By: | Kirui, Benard Kipyegon |
| Abstract: | Over the past decade, remittance flows to sub-Saharan Africa grew at an average of 12.9% and is expected to increase in the coming decade, however, the high cost of remittances remains a constraint that limits regular remittance flows. About 9.1 percent of remittance flows to sub-Saharan Africa is absorbed by transfer cost making it the most expensive remittance recipient region. With evidence that mobile money services reduce transaction costs for internal remittances, the introduction of mobile money services in international remittances should have the same effect. Against this backdrop, this study investigates the effect POLICY BRIEF The Role of Mobile Money in International Remittances: Evidence from Sub-Saharan Africa Benard Kipyegon Kirui October 2023 / No.805 2 Policy Brief No.805 of introduction of mobile money services on international remittance transfer costs and determine the effect of international remittance transfer costs on international remittance flows. Least squares dummy variable model and a system GMM is applied to address the first and second objective, respectively. International remittance transfer cost is lower by 46% for corridors that incorporate mobile money in international money transfer channels compared to those that do not. Controlling for other factors, the gap between corridors that incorporate mobile money and those that do not goes down to 11.5%. Thus, a reduction in remittance transfer costs can be achieved by improving cross border mobile money services interoperability. |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:6510bb93-0565-4581-9082-45daca72918a |
| By: | BIZOZA, Saidi; IRAKOZE, Gildas |
| Abstract: | Mobile money is a good example of the technological revolution through the digitalization of the banking system. However, the advantages offered by this new technological revolution has never been deeply explored with perspectives of existing gender and location gap in terms of financial inclusion. The present study explored the existence of policy/Regulations of Mobile Money in Burundi, the determinants of use of mobile phone and mobile money as well as the intensity of use of mobile money services and the mobile money usage impacts on gender and location perspectives on livelihood outcomes. The study used primary data collected in five different provinces. The study found that the mobile money ecosystem is governed by three different entities without a legal platform gathering them, moreover, the mobile money system is regulated by same text governing payment institutions. Furthermore, the access to electricity, alternative ways of recharge in case of lack of electricity and type of occupation of the household head were found to have a positive and significant influence on thrive, use of mobile phone, registration for mobile money and intensity of use of mobile money services. Education level, remittances, and location (urban vs rural) were found to have a positive and significant influence on both the registration and intensity of use of mobile money services. The study found also that the use of mobile money positively influences the quality of food consumption as well as the economic status proxied by wealth Index. No gender gap was found on food consumption for both wealth assets index and food consumption among the mobile money users. A significant gender gap was found both in wealth assets index and food consumption scores for mobile money non-users. A location food consumption gap was revealed for both mobile money users and non-users but with a significance skewed to mobile money nonusers households. A gap on location wealth assets was spotted out in favor of urban households for both mobile money users and non-users. |
| Date: | 2024–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:8cdd1260-1184-4ac3-b253-9f0baecc93a4 |
| By: | Sekumbo, Karia; Manda, Noela Ringo Constantine |
| Abstract: | This study investigated the distributional effects of a controversial tax that was instituted on mobile money withdrawals in 2021. The lowest taxable amount of TZS 1, 000 (USD 0.0023) was taxed at the highest rate of 1% on every withdrawal while the largest taxable bracket (starting from TZS 3 million equivalent to USD 1, 304.35) was taxed at a rate of 0.33% on every withdrawal. Almost immediately after its introduction, transaction volumes across mobile money platforms declined substantially. The countrys policy-makers revised this tax multiple times before removing it altogether. Given this turnaround, we investigated how the burden of tax affects different consumer groups. Our data sources for this analysis comprised aggregated transaction- level data obtained from the Bank of Tanzania alongside nationally representative survey data. Relying on survey data answer choices, we constructed regression models assessing how social determinants contributed to mobile money use. Our findings revealed salaried respondents based in urban areas as being more likely to reduce consumption of mobile money services because of this transaction tax. We also observed gender dynamics at play as being female was associated with receiving less mobile money from friends and family. These results suggest that less wealthy respondents in rural areas with fewer substitutes were forced to contend with this tax while wealthier urban respondents substituted into different financial services. The results are consistent with those from other African countries such as Kenya, Ghana, Malawi and Uganda, which also attempted to introduce similar taxes on mobile money and faced similar outcomes. |
| Date: | 2024–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:0b200bf8-0fb3-45ed-829a-2b8ecfc7157b |
| By: | Nogues-Marco, Pilar |
| Abstract: | Payment systems evolved from decentralized networks to centralized systems coordinated by a national bank. Contrary to the view that centralization was a natural economic process driven by the gradual concentration of interbank deposits in reputable banks, this research highlights state-driven institutional change. In Spain, the Bank of Spain secured a monopoly on national banknote issuance in 1874 during a civil war, despite opposition from regional issuing banks. While Northern Spain’s industrial growth challenged Madrid’s dominance as the payment system’s center, political motivations ultimately cemented Madrid as Spain’s geographical monetary center to support the nation-state’s building. |
| Keywords: | Payment systems, National issuing banking, Monetary geography, Political sovereignty, Systèmes de paiement, Banque nationale d’émission, Géographie monétaire, Souveraineté politique |
| JEL: | N23 G21 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:gnv:wpaper:unige:183332 |
| By: | Tamba, Cox Lwaka; Murithi, Immaculate Kathomi |
| Abstract: | The meteoric rise of digital financial services (DFS) in recent years has sparked the debate on whether they help financially constrained businesses to overcome their performance disadvantages. This study sought to examine whether female-owned enterprises, which tend to be more financially constrained than those owned by men, could curb their performance disadvantage attributable to financial constraints by using mobile moneya form of digital financial technology. Analysing data drawn from 317 firms subsumed in the 2018 World Bank Enterprise Survey on Kenya, we found that the use of mobile money for financial transactions reduces the performance disadvantage of female-owned firms. Using the OaxacaBlinder decomposition analysis, we further found that female-owned enterprises which use mobile money for financial transactions were able to cut circa 42.5% of their performance disadvantage induced by financial constraints. In additional analyses, we demonstrated that the influence of access to traditional financial services on the association between a firms use of mobile money and its performance outcomes is statistically insignificant. Overall, the findings highlight that women-owned firms could exploit mobile money technology to mitigate the gender gap in performance outcomes. |
| Date: | 2024–07–17 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:94e6dcbb-ef84-4ee5-ab21-0546b67245b1 |
| By: | Massacky, Joseph B.; Ajefuand Falecia |
| Abstract: | This paper analyses the impact of adoption of mobile money services on child labour and educational outcomes in Tanzania using an instrumental variables strategy. We identify heterogenous impacts across childs gender and age, and we find a positive and significant effect of mobile money adoption on educational outcomes, but the results reveal a negative and significant impact on child labour in the farm and households. Moreover, using mediation analysis, we identify remittances and education expenditure as the potential pathways through which mobile money adoption affects child labour and educational outcomes. POLICY BRIEF How Does Adoption of Mobile Money Technology Affect Child Labour and School Enrolment? Joseph B. Ajefuand Falecia Massacky October 2023 / No.806 2 Policy Brief No.806 Overall, the results suggest that policies that increase mobile money adoption can be effective in improving child educational outcomes and lead to a decline in the incidence of child labour |
| Date: | 2024–04–10 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:080c5f45-7d69-482a-b9fe-1ea7c03bb21d |
| By: | Döttling, Robin |
| Abstract: | How does the zero lower bound on deposit rates (ZLB) affect how banks respond to capital regulation? I study this question in a model in which households value the liquidity services of deposits yet do not accept negative deposit rates. When deposit rates are constrained by the ZLB, tight capital requirements disproportionately hurt franchise values and are therefore less effective in curbing excessive risk taking. The model delivers a novel rationale for "interest-dependent" capital regulation that is optimally laxer when the ZLB binds and tighter when the ZLB is slack but may bind in the future. |
| Date: | 2023–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:9dxzf_v1 |
| By: | Cornelia Tesliuc; A. L. Paffhausen; C. Avila |
| Keywords: | Macroeconomics and Economic Growth-Inflation |
| Date: | 2024–04 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:41398 |
| By: | Quartey, Peter; Atta-Ankomah, Richmond; Afful-Mensah, Gloria A |
| Abstract: | On 2 August 2021, the International Monetary Fund announced the largest (in its history) allocation of Special Drawing Rights(SDRs) worth US$650 billion (550 billion), which was approved with effect from 23 August 2021. A large proportion of the total allocation went to developed economies because they hold much higher quotas, although the levels of SDR utilisation by these countries have been historically very low, compared to developing countries like Ghana. The important question is: in what ways could Ghana benefit from SDRs beyond its allocation? How can the unused SDRs allocations be rechannelled to support developing countries' public finances and help their recovery from recurrent global multiple shocks? To help address these questions, this case study on Ghana sought to: (1) Comprehensively explore the state of Ghana's public sector finance and how it has been affected by the triple crisis (COVID-19 pandemic, rising external debts, and Russia-Ukraine war); (2) Explore the evolution of Ghana's external balance position and its vulnerabilities in the context of local constraints and external shocks; and (3) Explore the opportunities for using SDR facilities to support public financial management, improve external balance position, and as a vehicle to promote stable economic growth and development in Ghana. The study points to several structural constraints, both local and external, to prudent fiscal management, and underscores the need for reforming SDR regime to provide an alternative and sustainable financing framework for Ghana and similar developing countries. Several recommendations are also provided to address the challenges of public financial management, including low domestic revenue mobilisation and inefficiencies in public spending. |
| Date: | 2024–04–30 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:58fc69f9-694a-41f3-96c9-b37308a7b88a |
| By: | Shimeles, Abebe; Gallagher, Kevin |
| Abstract: | The triple and overlapping global shocks faced by African countries have caused severe liquidity challenges in recent years. Many countries are currently experiencing low real GDP growth, higher inflation, exchange rate instability, balance of payments crisis, and a high risk of debt distress. The most critical is the increasing disruption that climate change risks pose to the macroeconomy, including worsening conditions of conflict and instability. In this regard, Africa is at a significant historic moment to resolve its development finance challenges to ensure a transition to a low-carbon economy while achieving the targets set in the Sustainable Development Goals. This paper outlines potential areas of reform in both the domestic and global arenas. It argues that the existing debt resolution mechanisms are obsolete, requiring novel and bold approaches, such as revising the role of Special Drawing Rights in relieving liquidity challenges in developing countries, mainly in Africa. In addition, the paper also notes that African governments need to seize opportunities created by the shocks to implement long-overdue structural and governance reforms to realize the continents enormous development potential. |
| Date: | 2024–05–14 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:b0185468-6704-4746-9909-5c512e4b2e88 |