Date Added: Aug 2010
This paper applies and extends a theoretical model built by Agenor and Montiel (2007) by exploring the effectiveness of government bonds and monetary policy in a small, open, credit-based economy with a fixed exchange rate. The model is applied to Benin, a member of a currency union, using a general equilibrium model with stochastic simulation. Model calibration replicates the historical pattern for 1996 - 2009. Policy experiments simulated an increase in government securities in Benin's regional market and a cut in the reserve requirement. Simulations produced mixed results.