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Real exchange rate misalignment and economic growth: empirical evidence from Sudan

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  • Alamedin A. Bannaga
  • Ahmed A.A. Badawi

Abstract

The real exchange rate plays a central role in sustaining macroeconomic stability. Real exchange rate misalignment is crucial to policy makers, as it determines the degree of policy intervention needed to correct deviation and achieve stability. In this paper, we use econometric techniques to compute the level of exchange rate misalignment and identify its determinants in Sudan, a country that suffers enormously from currency crisis. We probe further to assess the impact of real exchange rate misalignment on economic growth. Our vector error correction model results show that long-run movements in the real exchange rate can be explained by net foreign assets, productivity differentials, terms of trade shocks, and government expenditure. The Sudanese pound, with the exception of a few years, has been highly overvalued for the period 1980-2011, and the growth rate has been affected negatively and significantly by the real exchange rate misalignment.

Suggested Citation

  • Alamedin A. Bannaga & Ahmed A.A. Badawi, 2014. "Real exchange rate misalignment and economic growth: empirical evidence from Sudan," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 7(3), pages 207-228.
    • Handle: RePEc:ids:ijmefi:v:7:y:2014:i:3:p:207-228
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    Cited by:

    1. Sushil Kumar Rai & Akhilesh Kumar Sharma, 2023. "Forecasting Exchange Rate Volatility In India Under Univariate And Multivariate Analysis," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 26(1), pages 175-190, March.
    2. Emmanuel Kwasi Mensah & Lawrence Adu Asamoah & Johnson Worlanyo Ahiadorme, 2021. "On the impact of exchange rate uncertainty on private investment in Ghana," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 208-217, January.
    3. Zainab Jehan & Iffat Irshad, 2020. "Exchange Rate Misalignment and Economic Growth inPakistan: The Role of Financial Development," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 81-99.

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