We examine the properties of alternative monetary policy rules in response to large aid surges in low-income countries characterized by incomplete capital market integration and currency substitution. Using a dynamic stochastic general equilibrium model, we show that simple monetary rules that...

This paper investigates the macroeconomic challenges created by a surge in aid inflows. It develops an analytical framework for examining possible policy responses to increased aid, in terms of absorption and spending of aid - where the central bank controls absorption through monetary policy...

The paper explores the impact of a binding external debt-servicing constraint on the sectoral composition of government expenditures in the economies of Africa, where this constraint has traditionally been most prevalent. Applying seemingly unrelated regression (SUR) to 1975-94 five-year panel...