Macroeconomic commitment institutions

Brown Bag Lunch

Tuesday 26 May 2009
12h15 - R3

Sophia Gollwitzer

“Macroeconomic commitment institutions:
The role of the central bank and the budget process in shaping African economic policies”

Abstract: African countries continue to pursue largely diverging and often unsustainable macroeconomic policies that provide major obstacles to the envisioned regional and eventually continental integration. This study argues that institutions encouraging commitment to sound macroeconomic policy-making are what is currently needed most in African economies and that priority should be given to national institutional reforms before deepening the current integration process. Aiming at identifying the most urgent reforms, the study measures the quality of existing institutions in all member states of the African Union and analyzes their roles in shaping macroeconomic outcomes. Two indices are constructed, one on central bank independence (CBI), and one on the quality of budgetary institutions, both carefully designed to capture the specificities of the economic and political context in the region. In a cross-section analysis on the 53 countries the appropriate weights for the various index components are obtained. The aggregated CBI and budgetary indices are then used to asses the impact of the two types of institutions on inflation and public deficits respectively. While the cross-country analysis is expected to provide useful insights into the determinants of macroeconomic performance in African countries, the main contribution of this research is the compilation of two original databases.