Publication Date

2010

Comments

Working Paper 218

Abstract

This paper examines the question of whether inflation targeting monetary policy is an appropriate framework for sub-Saharan African countries. The paper presents an overview of inflation targeting, reviews the justification for the regime, and summarizes some major critiques. Monetary policy responses to inflation depend on the source of inflationary pressures. Therefore, the determinants of inflation in African countries are investigated, using dynamic panel data, and the implications for inflation targeting are discussed. These issues are examined in greater detail for the two African countries which have formally adopted inflation targeting, South Africa and Ghana. The analysis is placed in the context of the global economic crisis. The paper concludes with a discussion of alternative approaches to monetary policies and the institutional constraints that would need to be addressed to allow central banks to play a stronger developmental role in sub-Saharan African countries.

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