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Monetary Policy in Sub-Saharan Africa$
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Andrew Berg and Rafael Portillo

Print publication date: 2018

Print ISBN-13: 9780198785811

Published to Oxford Scholarship Online: April 2018

DOI: 10.1093/oso/9780198785811.001.0001

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Monetary Policy in Low-Income Countries in the Face of the Global Crisis

Monetary Policy in Low-Income Countries in the Face of the Global Crisis

A Structural Analysis

(p.336) Chapter 17 Monetary Policy in Low-Income Countries in the Face of the Global Crisis
Monetary Policy in Sub-Saharan Africa

Alfredo Baldini

Jaromir Benes

Andrew Berg

Mai C. Dao

Rafael Portillo

Oxford University Press

The authors develop a dynamic stochastic general equilibrium (DSGE) model with a banking sector to analyse the impact of the financial crisis in developing countries and the role of the monetary policy response, with an application to Zambia. The crisis is interpreted as a combination of three related shocks: a worsening in the terms of the trade, an increase in the country’s risk premium, and a decrease in the risk appetite of local banks. Model simulations broadly match the path of the economy during this period. The model-based analysis reveals that the initial policy response contributed to the domestic impact of the crisis by further tightening financial conditions. The authors derive policy implications for central banks, and for dynamic stochastic general equilibrium modelling of monetary policy, in low-income countries.

Keywords:   Global financial crisis, Zambia, DSGE models, macro-financial interactions, Africa, low-income countries, developing countries

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