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Abstract

Many low-income countries do not use interest rates as their main monetary policy instrument. In East Africa, for instance, targeting money aggregates has been pretty much the rule rather than the exception. Nevertheless, these targets are seldom met and often readjusted according to the economic environment. This opens up the possibility that central banks are de facto pursuing a strategy more akin to a Taylor Rule. Estimations of small-scale models for Kenya, Uganda and Tanzania suggest that these self-styled 鈥渕onetary targeters鈥� are respecting the Taylor Principle, that is are on average increasing nominal interest rates more than proportionally to inflation. Nevertheless, steep deviations from the Taylor Rule have taken place in Kenya and Tanzania. In Uganda, these errors are much smaller, in fact similar in size to Taylor Rule deviations found for Brazil. More surprisingly, they are smaller than South Africa鈥檚, the continent鈥檚 sole long-term inflation targeter.

This work is part of the 鈥楳acroeconomics in Low-income countries鈥� programme

Citation

Carlos Goncalves (2016) Taylor Visits Africa. IMF Working Paper No. 15/258

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