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...

This paper grew out of our bewilderment with the insouciance with which some in the donor community seem ready to abandon accounting for the use of aid. If one listens to the rhetoric surrounding the new approach to aid, one gets the impression that most of the crucial accounting tasks must be...

Japan has emerged in recent years as a leading donor country to African countries. At one level, Japan’s renewed assertiveness in providing foreign aid to Africa is on par with the more active approach by other donor countries. Some might argue that Japan’s motivations to lend capital and...

The expected increase in aid to Africa will put a big challenge for public service delivery. Using a simultaneous equation model, this paper provides an analysis of the effects of the volume and volatility of aid on education, health, water and sanitation outcomes, taking also into account the...

The ability of low-income countries to productively absorb large amounts of external assistance is a central issue for efforts to scale-up aid. This paper examines absorptive capacity in the context of MDG-based development programmes in low-income countries. It first defines absorptive...

This paper examines whether foreign aid in education has a significant effect on growth. We take into consideration the heterogeneous nature of aid as well as the heterogeneity of aid recipients—we disaggregate the aid data into primary, secondary and higher education, and run separate...