Monetary Policy Formulation Guide Developed

Nairobi, Tuesday, March 10, 2020: COMESA Monetary Institute has developed a User’s Guide on the Basic Dynamic Stochastic General Equilibrium (DSGE) Modelling and Forecasting for Monetary Policy Formulation.

DSGE is an economic tool kit or method used by economists to explain the working of the economy from micro-economic principles (foundations). The tool kit models interactions of household, firms, government and external sector behaviour, such as agents that constitute the economy, to inform economic policy.

Finance experts from COMESA Central Banks validated the User’s Guide during a workshop conducted in Nairobi, Kenya on 2 – 6 March 2020. This was part of the CMI’s work-plan for 2020. Participants were drawn from 10 countries including D R Congo, Egypt, Eswatini, Kenya, Malawi, Rwanda, Sudan, Tunisia, Zambia, and Zimbabwe.

Knowledge Product

The Guide will serve as a knowledge product to enhance analytical capacity and also to develop the skills of staff in Central Banks in COMESA, to build small to medium scale DSGE models for their respective countries. Ultimately, it will contribute to improved monetary policy formulation and enhance the implementation of the COMESA monetary integration programme by all member countries.

“Contemporary monetary policy formulation requires information and forecasts on the interaction between sectors and variables in the economy, which can be better understood through DSGE modeling, which have richer micro-foundation that captures economic relationships than other comparable models,” Mr. Zeidy told the delegates.

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