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The importance of the exchange rate regime in limiting current account imbalances in sub-Saharan African countries

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  • Blaise Gnimassoun

Abstract

One of the major current concerns of economic policy in developing countries is the choice of the appropriate exchange rate regime to consolidate and accelerate the pace of economic growth. This paper aims to investigate whether the choice of a country’s exchange rate regime may affect current account imbalances for sub-Saharan African economies. To this end, we first use Bayesian model averaging (BMA) to address concerns about model uncertainty and identify the key determinants (fundamentals) of external balances. Then, estimating current account imbalances over the 1980-2012 period, we show that flexible exchange rate regimes are more effective in preventing such disequilibria. Consequently, candidates for membership of monetary unions should discuss widely the possible adjustment mechanisms before forming such unions; one potential measure being the sharing of external risks at regional level

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Bibliographic Info

Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2014-22.

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Length: 40 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:drm:wpaper:2014-22

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Keywords: Current account imbalances; Exchange rate regime; Bayesian model averaging; Sub-Saharan Africa.;

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