Monetary policy in Botswana is premised on the assumption that the impact of policy on output is forward-looking. This paper tests the baseline and extended backward and forward-looking versions of the New Keynesian IS curve for Botswana. The major finding is that the relationship between output and policy interest rate is backward looking not forward-looking. In addition to the policy rate, other variables namely
M2, South African demand, and the food index determine aggregate demand in Botswana. These findings are robust to structural break tests.

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