The Equilibrium Real Exchange Rate of the Malagasy Franc
AbstractEmploying cointegration techniques, the long-run determinants of Madagascar''s real exchange rate are examined from a stock-flow perspective. The long-run behavior of the real effective exchange rate is explained by the net foreign asset position and factors affecting trade flows. An index of the long-run equilibrium real exchange rate is developed to assess the degree of misalignment. The general conclusions are that the Malagasy franc has experienced significant misalignment in the past, but that the recent appreciation of the real effective exchange rate is consistent with changes in the fundamentals, particularly anticipated improvements in the net foreign assets position stemming from Madagascar''s eligibility for assistance under the enhanced HIPC Initiative.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 03/28.
Date of creation: 01 Feb 2003
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