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Investigating the link between the exchange rate regime and underlying misalignments

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  • Ferdinand Owoundi

    (C.R.I.E.F, University of Poitiers (France))

Abstract

This paper investigates the link between the exchange rate regime and underlying misalignments within two groups of Sub-Saharan African countries experiencing different exchange rate arrangements, with the goal of providing useful recommendations for economic policy. To this end, we first compute misalignments relying on the well-known behavioral approach to the equilibrium exchange rate which we modify by introducing dummy variables to account for the type of the exchange rate regime. Resulting misalignments are then compared through a mean comparison test. As a proof of consistency, we asses a new equilibrium exchange rate based on the so-called “Natural†approach to the equilibrium exchange rate and resulting misalignments are also compared through another mean comparison test. Overall, results show that the exchange rate regime is not responsible for misalignments or even their potential growth repercussions.

Suggested Citation

  • Ferdinand Owoundi, 2017. "Investigating the link between the exchange rate regime and underlying misalignments," Economics Bulletin, AccessEcon, vol. 37(2), pages 880-888.
    • Handle: RePEc:ebl:ecbull:eb-14-00640
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    References listed on IDEAS

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    1. Jamal Bouoiyour & Velayoudom Marimoutou & Serge Rey, 2004. "Taux de change reel d'equilibre et politique de change au Maroc : une approche non parametrique," Economie Internationale, CEPII research center, issue 97, pages 81-104.
    2. Mr. Joannes Mongardini & Brett Rayner, 2009. "Grants, Remittances, and the Equilibrium Real Exchange Rate in Sub-Saharan African Countries," IMF Working Papers 2009/075, International Monetary Fund.
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    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    5. Virginie Coudert, 1999. "Comment definir un taux de change d'equilibre pour les pays emergents ?," Economie Internationale, CEPII research center, issue 77, pages 45-66.
    6. Virginie Coudert & Cécile Couharde, 2009. "Currency Misalignments and Exchange Rate Regimes in Emerging and Developing Countries," Review of International Economics, Wiley Blackwell, vol. 17(1), pages 121-136, February.
    7. Dubas, Justin M., 2009. "The Importance of the Exchange Rate Regime in Limiting Misalignment," World Development, Elsevier, vol. 37(10), pages 1612-1622, October.
    8. Mr. Ronald MacDonald & Mr. Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals: A Methodological Comparison of BEERs and FEERs," IMF Working Papers 1998/067, International Monetary Fund.
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    More about this item

    Keywords

    Exchange Rate Regime; Equilibrium Exchange Rates; Misalignments; Pooled Mean Group;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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