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On the Relation between Nominal Devaluation and Real Devaluation: Evidence from African Countries

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  • Mohsen Bahmani-Oskooee
  • Abera Gelan

Abstract

A country devalues its currency with an expectation that it will gain international competitiveness and increase its exports. However, the inflationary effects of devaluation could curtail its favourable effects unless nominal devaluation leads to real devaluation. In this paper, we consider the experiences of 21 African countries. After constructing the real and nominal effective exchange rates over the 1971I--2004III period, we employ the bounds-testing approach to cointegration and show that in almost all countries nominal devaluation leads to real devaluation in the short run. However, the short‐run effects last into the long run only in three countries. Copyright 2007, Oxford University Press.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Abera Gelan, 2007. "On the Relation between Nominal Devaluation and Real Devaluation: Evidence from African Countries," Journal of African Economies, Centre for the Study of African Economies, vol. 16(2), pages 177-197, March.
    • Handle: RePEc:oup:jafrec:v:16:y:2007:i:2:p:177-197
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    Cited by:

    1. Abdallah, Ali, 2022. "Dépréciation réelle de la monnaie et croissance économique [Can real currency depreciation lead growth?]," MPRA Paper 113183, University Library of Munich, Germany.
    2. Salah A Nusair, 2017. "On the Nominal and Real Currency Devaluation Nexus in European Transition Economies," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(4), pages 677-698, September.
    3. Phouphet Kyophilavong & Muhammad Shahbaz & Gazi Salah Uddin, 2015. "A Note on Nominal and Real Devaluation in Laos," Global Business Review, International Management Institute, vol. 16(2), pages 236-243, April.
    4. Amjad Ali & Muhammad Irfan Chani, 2013. "Disaggregated Import Demand Function: A Case Study of Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(1), pages 1-14, January.
    5. Muhammad SHAHBAZ, 2009. "On Nominal and Real Devaluations Relation: An Econometric Evidence for Pakistan," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 9(1).
    6. Bahmani-Oskooee, Mohsen & Hegerty, Scott W. & Kutan, Ali M., 2008. "Do nominal devaluations lead to real devaluations? Evidence from 89 countries," International Review of Economics & Finance, Elsevier, vol. 17(4), pages 644-670, October.
    7. Muhammad Irfan CHANI & Zahid PERVAIZ & Amatul R. CHAUDHARY, 2011. "Determination of Import Demand in Pakistan: The Role of Expenditure Components," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(8(561)), pages 93-110, August.
    8. Gregory N. Price & Juliet U. Elu, 2014. "Does regional currency integration ameliorate global macroeconomic shocks in sub-Saharan Africa? The case of the 2008-2009 global financial crisis," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 41(5), pages 737-750, September.

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