An Estimated DSGE Model for Monetary Policy Analysis in Low-Income Countries

33 Pages Posted: 27 Dec 2007

See all articles by Shanaka J. Peiris

Shanaka J. Peiris

International Monetary Fund (IMF)

Magnus Saxegaard

International Monetary Fund (IMF)

Date Written: December 2007

Abstract

This paper evaluates monetary policy trade-offs in low-income countries using a dynamic stochastic general equilibrium (DSGE) model estimated on data for Mozambique taking into account the sources of major exogenous shocks, and level of financial development. To our knowledge this is a first attempt at estimating a DSGE model for Sub-Saharan Africa excluding South Africa. Our simulations suggests that a exchange rate peg is significantly less successful than inflation targeting at stabilizing the real economy due to higher interest rate volatility, as in the literature for industrial countries and emerging markets.

Keywords: Monetary policy, Africa, Currency pegs, Inflation targeting, Low-income developing countries

Suggested Citation

Peiris, Shanaka J. and Saxegaard, Magnus, An Estimated DSGE Model for Monetary Policy Analysis in Low-Income Countries (December 2007). IMF Working Paper No. 07/282, Available at SSRN: https://ssrn.com/abstract=1078787

Shanaka J. Peiris (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Magnus Saxegaard

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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