Angola: Selected Issues

This Selected Issue paper focuses on modeling monetary policy in resource-rich economics in Angola. This paper uses an extended semistructural New Keynesian model to simulate shocks and analyze policy scenarios in Angola. The model features Angola’s oil dependence and strong linkages between the oil sector and the exchange rate. The key objectives are to develop a forward-looking framework that can model the impact of shocks on an economy calibrated to mimic Angola, and inform monetary policy discussions with the analysis of various policy trade-offs. Shocks to the oil sector influence both the cyclical and structural levels of the economy, especially given the nature of ageing oil fields in Angola. All variables in the behavioral equations are expressed as gaps, defined as percentage deviations from their trend or equilibrium levels. The simulations highlight that improving monetary policy framework and credibility can lower output cost and economic volatility during shock periods.