prudence confronts many challenges. This paper discusses what low-income countries can do to shape fiscal policy frameworks … expenditure programs and finances. It suggests what approaches can be used to manage the greater fiscal policy risks associated … with a scaled-up aid environment, including coordination with monetary policy. The paper also discusses what institutional …

policy. To characterize the optimal policy, we develop a general equilibrium model in which the capital account is closed and …

developing countries: through behavioural effects, donor conditionality, recipient policy reform and technical assistance; and …

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 and the sale of foreign exchange and the fiscal authority controls … part in the policy reaction to aid surges. Fiscal and monetary authorities should coordinate their responses to an aid …