Commodity Price Fluctuations and Their Impact on Monetary and Fiscal Policies in Western and Central Africa

56 Pages Posted: 23 Apr 2007

See all articles by Uwe Böwer

Uwe Böwer

European Central Bank (ECB) - Directorate General International and European Relations

André Geis

European Central Bank (ECB)

Adalbert Winkler

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: April 2007

Abstract

Commodity prices play an important role in economic developments in most of the 24 Western and Central African (WCA) countries covered in this paper. It is confirmed that in the light of rising commodity prices between 1999 and 2005, net oil exporters recorded strong growth rates while net oil-importing countries - albeit benefiting from increases in their major non-oil commodity export prices - displayed somewhat lower growth. For most WCA economies, inflation rates appear less affected by commodity price changes and more determined by exchange rate regimes as well as monetary and fiscal policies. While pass-through effects from international to domestic energy prices were significant, notably in oil-importing countries, second-round effects on overall prices seem limited. Governments of oil-rich countries reacted prudently to windfall revenues, partly running sizable fiscal surpluses. A favourable supply response to rising spending as well as sterilisation efforts and increasing money demand also helped to dampen inflationary pressures. However, substantial excess reserves of commercial banks reflect challenges in financial sector developments and the effectiveness of monetary policy in many WCA countries. Given currently widely used fixed exchange rate regimes, fiscal policy will continue to carry the main burden of macroeconomic adjustment and of sustaining non-inflationary growth, which remains the key policy challenge facing WCA authorities.

Keywords: Africa, commodity prices, monetary policy, fiscal policy

JEL Classification: Q33, O23, O24, O55

Suggested Citation

Böwer, Uwe and Geis, André and Winkler, Adalbert, Commodity Price Fluctuations and Their Impact on Monetary and Fiscal Policies in Western and Central Africa (April 2007). ECB Occasional Paper No. 60, Available at SSRN: https://ssrn.com/abstract=967605

Uwe Böwer (Contact Author)

European Central Bank (ECB) - Directorate General International and European Relations ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

André Geis

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Adalbert Winkler

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
163
Abstract Views
1,315
rank
220,409
PlumX Metrics