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Africa's rising inflation : causes, consequences, and cures

Abstract

This paper provides an analytical and selective empirical survey of inflation in sub-Saharan Africa. It begins with an empirical assessment of inflation in Africa using various price indicators, and then looks at the major instruments of anti-inflationary policy. Instead of listing each instrument, the paper attempts to distinguish countries by broad policy regimes into four categories. A common generalized model of inflation is set-up, and each policy regime is shown to be a special case of that general model. The four prototypes classified are: (a) the CFA franc zone model of pegged exchange rates, open capital account and no price controls; (b) fixed-but-adjusting exchange rates, with closed capital account and some selective price controls; (c) fixed-but-adjusting exchange rates with widespread parallel markets, closed capital account and selective price controls; and (d) dual exchange rates, closed capital account but with extensive and effective pricecontrols. It uses the results from various empirical studies to examine the issues of policy coordination and sequencing that arise under each of the policy regimes. The paper particularly focuses on the interaction of exchange rate policy and inflation in view of the recent debate on this subject. It also examines the question of unravelling price controls and its implication for exchange rate, monetary and fiscal policy and financial sector reforms.Economic Theory&Research,Environmental Economics&Policies,Access to Markets,Markets and Market Access,Economic Stabilization

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This paper was published in Research Papers in Economics.

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