Fiscal dominance and inflation: evidence from Sub-Saharan Africa

Authors

DOI:

https://doi.org/10.3326/pse.48.3.5

Keywords:

inflation, monetary policy, central bank, fiscal policy, fiscal dominance, quasi-fiscal, policy coordination, exchange rate

Abstract

During the Covid-19 pandemic, the debate on monetary financing was reignited and several economists called for governments to borrow from their central banks to finance larger deficits. Sub-Saharan Africa provides useful insights into this debate since it is a region where “fiscal dominance” has long been widespread. We find that fiscal dominance is stronger during periods of pressure on public finances, particularly when alternative financing options are limited. We also find that central bank financing of government does have an inflationary impact through the exchange rate channel. Numerical legal limits on central bank financing can be an effective way to mitigate the risks, even if they are not always binding.

Author Biographies

John Hooley Hooley, International Monetary Fund, Fiscal Affairs Department, Washington, D.C., United States

John Hooley is a Senior Economist in the Fiscal Affairs Department at the IMF. Between 2008 and 2014 he was an economist at the Bank of England. He has broad research interests spanning fiscal and monetary policy, sovereign debt and financial stability. John holds postgraduate degrees in Economics from the London School of Economics and Cambridge University.

Mika Saito, International Monetary Fund, African Department, Washington, D.C., United States

Mika Saito is an Advisor at the African Department at the IMF. Her research interests are in international economics and monetary policy. Recent work has been on the macroeconomic implications of global value chains, trade finance, protectionism, and fiscal dominance in monetary policy. She holds a Ph.D. in Economics from Cornell University and M.Sc. in Economics from the London School of Economics. Prior to the IMF, she was Assistant Professor in the Mendoza College of Business at the University of Notre Dame.

Downloads

Published

2024-09-03

How to Cite

Hooley, J. H., Nguyen, L., Saito, M., & Towfighian, S. N. (2024). Fiscal dominance and inflation: evidence from Sub-Saharan Africa. Public Sector Economics - Submission Site, 48(3), 363–391. https://doi.org/10.3326/pse.48.3.5

Issue

Vol. 48 No. 3 (2024)

Section

Articles

License

Copyright (c) 2024 John Hooley Hooley, Lam Nguyen , Mika Saito, Shirin Nikaein Towfighian

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

If accepted for publication, the authors will be asked to sign a Licence to Publish. Authors retain the copyright on the papers published in PSE  but grant the right of publication to the journal.
 
Authors must obtain the right to use copyright material (e.g. maps, drawings, literary quotes, lyrics) from its owner before publishing the paper in PSE.
 
PSE  is an Open Access Journal licensed under the Creative Commons Attribution-Non/Commercial 4.0 International License, which permits non-commercial use and redistribution, as long as the licensed work is passed along unchanged and in whole, with credit to PSE  as its original publisher.
 
The authors can make the results of their accepted papers available before they are published in PSE on preprint platforms, blogs, and other informal communication channels by providing a link to the PSE  website and noting that the manuscript will be published in PSE.
 
For complete information on copyright, please see Ethical guidelines for publication in PSE