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Estimation of the Equilibrium Real Exchange Rate for Malawi

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  • Johan Mathisen
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    Abstract

    This paper computes Malawi's equilibrium real exchange rate as a function of its fundamentals as derived from economic theory. It finds evidence in favor of the equilibrium approach to exchange rate determination, with several variables (particularly government consumption and real per capita growth) found to drive movements in the time-varying equilibrium real exchange rate. The results also indicate that following a shock there is a rapid reversion of the real exchange rate to its time-varying equilibrium, with a half-life of reversion of about 11 months.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16543
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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/104.

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    Length: 25
    Date of creation: 01 May 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/104

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    Related research

    Keywords: Real effective exchange rates; Economic models;

    References

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    1. Ronald MacDonald & Luca Antonio Ricci, 2001. "PPP and the Balassa Samuelson Effect: The Role of the Distribution Sector," IMF Working Papers 01/38, International Monetary Fund.
    2. Ronald MacDonald & Luca Antonio Ricci, 2003. "Estimation of the Equilibrium Real Exchange Rate for South Africa," IMF Working Papers 03/44, International Monetary Fund.
    3. Ratna Sahay & Luis Felipe Céspedes & Paul Cashin, 2002. "Keynes, Cocoa, and Copper: In Search of Commodity Currencies," IMF Working Papers 02/223, International Monetary Fund.
    4. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    5. Enrique Alberola & Susana G. Cervero & Humberto Lopez & Angel Ubide, 2000. "Global Equilibrium Exchange Rates: Euro, Dollar, "Ins," "Outs," and Other Major Currencies in a Panel Cointegration Framework," Econometric Society World Congress 2000 Contributed Papers 0051, Econometric Society.
    6. Luca Antonio Ricci & Ronald MacDonald, 2002. "Purchasing Power Parity and New Trade Theory," IMF Working Papers 02/32, International Monetary Fund.
    7. Gonzalo, Jesus & Granger, Clive W J, 1995. "Estimation of Common Long-Memory Components in Cointegrated Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 27-35, January.
    8. Collier, Paul & Joshi, Vijay, 1989. "Exchange Rate Policy in Developing Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 5(3), pages 94-113, Autumn.
    9. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
    10. Joannes Mongardini, 1998. "Estimating Egypt's Equilibrium Real Exchange Rate," IMF Working Papers 98/5, International Monetary Fund.
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    Citations

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    Cited by:
    1. Shehu Usman Rano, Aliyu, 2008. "Real Exchange Rate Misalignment: An Application of Behavioral Equilibrium Exchange Rate (BEER) to Nigeria," MPRA Paper 10343, University Library of Munich, Germany.
    2. Cheng, Fuzhi & Orden, David, 2005. "Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates: Empirical Evidence from India and China," 2005 Annual meeting, July 24-27, Providence, RI 19121, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Shehu Usman Rano Aliyu, 2010. "Exchange rate volatility and export trade in Nigeria: an empirical investigation," Applied Financial Economics, Taylor & Francis Journals, vol. 20(13), pages 1071-1084.
    4. Cheng, Fuzhi & Orden, David, 2005. "Exchange rate misalignment and its effects on agricultural producer support estimates," MTID discussion papers 81, International Food Policy Research Institute (IFPRI).
    5. Mark Lewis & Jean-Claude Nachega & Said Bakhache & Kadima D. Kalonji, 2006. "Assessing Competitiveness After Conflict: The Case of the Central African Republic," IMF Working Papers 06/303, International Monetary Fund.
    6. Sosunov, K. & Ushakov, N., 2009. "Determination of the Real Exchange Rate of the Ruble and Assessment of Long-Run Policy of Real Exchange Rate Targeting," Journal of the New Economic Association, New Economic Association, issue 3-4, pages 97-121.
    7. Jaime Silva González, 2009. "Estimación de la tasa de cambio real de equilibrio: aplicación a Colombia," Revista de Economía del Caribe, UNIVERSIDAD DEL NORTE.
    8. Eugenio Cerutti & Mario Mansilla, 2008. "Bolivia: The Hydrocarbons Boom and the Risk of Dutch Disease," IMF Working Papers 08/154, International Monetary Fund.
    9. Sossounov, Kirill & Ushakov, Nikolay, 2009. "Determination of the real exchange rate of rouble and assessment of long-rum policy of real exchange rate targeting," MPRA Paper 18549, University Library of Munich, Germany.

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