Monetary Policy in African Countries: Theory, Practice and Impact

The prevailing macroeconomic frameworks in African countries may be generally characterized as a do no harm approach to policy. Like in other developing regions, macroeconomic policy in African countries primarily pursues two very narrow objectives: (1) maintaining price stability and specifically low inflation; (2) achieving public debt sustainability. In practice monetary policy in African countries has been primarily focused on controlling inflation through domestic demand management. In fact, it is fair to say that today almost all African countries are de facto inflation targeters although few (South Africa, Ghana, and Mauritius) have formally adopted inflation targeting as their official monetary framework. The question that arises is whether such a policy orientation is appropriate for African countries given their structural conditions and their development objectives. A related question is whether the design and conduct of monetary policy has taken advantage of lessons from history in Africa and around the world. In other words, has there been ‘learning by doing’ and ‘learning from others’ in the design and practice of monetary policy in Africa? The aim of this research project is to investigate these and other related questions using a combination of econometric, institutional and historical approaches with the view to shed light on research as well as policy design in monetary policy in the context of developing countries in general and Africa in particular.