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Uruguay has recently reverted to a money targeting (MT) framework in the context of a disinflation strategy. We develop a quantitative model for monetary policy analysis incorporating money targets in the policy framework while also retaining a central role for interest rates in the transmission of policy. We use the model to show that tight financial conditions for a period may be necessary for inflation to converge to the middle of the target band. We also discuss various aspects of the MT framework. Two issues stand out. Excessive focus on hitting money targets can result in undesirable changes in the policy stance; while targets that incorporate elements of money demand forecasting are superior to targets that are excessively smooth or do not adjust for base effects.

Banks and Banking --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Monetary Policy --- Central Banks and Their Policies --- Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation --- Fiscal and Monetary Policy in Development --- Price Level --- Deflation --- Demand for Money --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics --- Currency --- Foreign exchange --- Monetary economics --- Finance --- Demand for money --- Real exchange rates --- Real interest rates --- Exchange rates --- Prices --- Money --- Financial services --- Interest rates --- Uruguay

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Low-income countries in sub-Saharan Africa present unique monetary policy challenges, from the high share of volatile food in consumption to underdeveloped financial markets. This title draws on the International Monetary Fund's research and practice to uncover how monetary policy in this region currently operates, and what changes should be made.

Monetary policy --- Africa, Sub-Saharan --- Economic conditions. --- Monetary management --- Economic policy --- Currency boards --- Money supply

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Low-income countries in sub-Saharan Africa present unique monetary policy challenges, from the high share of volatile food in consumption to underdeveloped financial markets. This book draws on the International Monetary Fund's research and practice to uncover how monetary policy in this region currently operates, and what changes should be made.

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We develop a tractable small open-economy model to study the first-round effects of international food price shocks in developing countries. We define first-round effects as changes in headline inflation that, holding core inflation constant, help implement relative price adjustments. The model features three goods (food, a generic traded good and a non-traded good), varying degrees of tradability of the food basket, and alternative international asset market structures (complete and incomplete markets, and financial autarky). First-round effects depend crucially on the asset market structure and the different transmission mechanisms they trigger. Under complete markets, inter-temporal substitution prevails, making the inflationary impact of international food prices proportional to the food share in consumption, which in developing economies is typically large. Under financial autarky, the income channel is dominant, and first-round effects are instead proportional to the country's food balance—the difference between the country's food endowment and its consumption—which in developing countries is typically small. The latter result holds regardless of the degree of food tradability. Incomplete markets yield a combination of the two extremes. Our results cast some doubt on the view that international food price shocks are inherently inflationary in developing countries.

Food prices. --- Food --- Agricultural prices --- Food industry and trade --- Prices --- Finance: General --- Inflation --- Macroeconomics --- Open Economy Macroeconomics --- Macroeconomic Analyses of Economic Development --- Price Level --- Deflation --- Macroeconomics: Consumption --- Saving --- Wealth --- Agriculture: Aggregate Supply and Demand Analysis --- General Financial Markets: General (includes Measurement and Data) --- Commodity Markets --- Finance --- Consumption --- Food prices --- Securities markets --- Commodity price shocks --- National accounts --- Financial markets --- Economics --- Capital market --- Ghana

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Many low-income countries continue to describe their monetary policy framework in terms of targets on monetary aggregates. This contrasts with most modern discussions of monetary policy, and with most practice. We extend the new-Keynesian model to provide a role for “M” in the conduct of monetary policy, and examine the conditions under which some adherence to money targets is optimal. In the spirit of Poole (1970), this role is based on the incompleteness of information available to the central bank, a pervasive issues in these countries. Ex-ante announcements/forecasts for money growth are consistent with a Taylor rule for the relevant short-term interest rate. Ex-post, the policy maker must choose his relative adherence to interest rate and money growth targets. Drawing on the method in Svensson and Woodford (2004), we show that the optimal adherence to ex-ante targets is equivalent to a signal extraction problem where the central bank uses the money market information to update its estimate of the state of the economy. We estimate the model, using Bayesian methods, for Tanzania, Uganda (both de jure money targeters), and Ghana (a de jure inflation targeter), and compare the de facto adherence to targets with the optimal use of money market information in each country.

Monetary policy --- Money --- Banks and Banking --- Inflation --- Money and Monetary Policy --- Production and Operations Management --- Macroeconomics: Production --- Demand for Money --- Price Level --- Deflation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Interest Rates: Determination, Term Structure, and Effects --- Macroeconomics --- Monetary economics --- Finance --- Output gap --- Demand for money --- Monetary aggregates --- Short term interest rates --- Production --- Economic theory --- Prices --- Money supply --- Interest rates --- Uganda