IMF Working Papers

Measuring Monetary Policy Stance in Sub-Saharan African Emerging and Frontier Markets

By Johanna Tiedemann, Olivier Bizimana, Shant Arzoumanian

August 15, 2025

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Format: Chicago

Johanna Tiedemann, Olivier Bizimana, and Shant Arzoumanian. "Measuring Monetary Policy Stance in Sub-Saharan African Emerging and Frontier Markets", IMF Working Papers 2025, 160 (2025), accessed August 22, 2025, https://doi.org/10.5089/9798229016957.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper assesses the stance of monetary policy in eleven Sub-Saharan African (SSA) emerging and frontier market economies. We estimate neutral real interest rates using a range of methodologies, and find a broadly declining trend in most economies since the Global Financial Crisis, consistent with patterns observed in advanced and major emerging market economies. We document significant heterogeneity in monetary policy stances—measured by the interest rate gap—even during common global shocks. We also examine the consistency between signals from the intended monetary policy stance and broader financial conditions. To this end, we construct financial conditions indices (FCIs) and analyze their relationship with interest rate gaps. We find that this relationship strengthens during periods of highly accommodative or restrictive monetary stances, particularly in economies that have adopted or are transitioning to inflation-targeting frameworks. Moreover, contractionary monetary shocks tighten financial conditions more in these economies than in those operating under other regimes.

Subject: Central bank policy rate, Credit aggregates, Emerging and frontier financial markets, Financial conditions index, Financial markets, Financial sector policy and analysis, Financial services, Inflation, Monetary aggregates, Monetary policy, Monetary policy frameworks, Monetary stance, Money, Output gap, Prices, Production, Real interest rates

Keywords: Republic of, Africa, Central bank policy rate, Credit aggregates, Emerging and frontier financial markets, Financial Conditions, Financial conditions index, Global, Inflation, Kenya, Monetary aggregates, Monetary policy frameworks, Monetary Policy Stance, Monetary Policy Transmission, Monetary stance, Mozambique, Neutral Interest Rate, Output gap, Real interest rates, Short term interest rates, SSA, Sub-Saharan Africa

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