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The Equilibrium Real Exchange Rate of the Malagasy Franc

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  • John Cady
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    Abstract

    Employing 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 Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/28.

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    Length: 19
    Date of creation: 01 Feb 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/28

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    Related research

    Keywords: Real effective exchange rates; exchange rate; real exchange rate; cointegration; equation; exchange rates; effective exchange rate; real effective exchange rate; statistics; exchange rate misalignment; independent variables; autocorrelation; real exchange rate misalignment; foreign exchange; statistic; real exchange rates; constant term; equations; equilibrium exchange rate; exchange rate determination; estimation method; financial statistics; foreign exchange transactions; nominal exchange rate; market exchange rates; exchange rate regime; effective exchange rates; estimation technique; foreign exchange market; exchange transactions; exchange rate arrangements; maximum likelihood estimation; correlation; logarithms; floating exchange rate regime; time series; estimation period; statistical tests; hypothesis testing; correlations; real exchange rate appreciation; exchange rate appreciation; exchange rate policies; dummy variable; real variables; independent variable; floating exchange rate;

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
    2. Claudio Paiva, 2001. "Competitiveness and the Equilibrium Exchange Rate in Costa Rica," IMF Working Papers 01/23, International Monetary Fund.
    3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    4. Dominique Desruelle & Alessandro Zanello, 1997. "A Primeron the IMF's Information Notice System," IMF Working Papers 97/71, International Monetary Fund.
    5. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
    6. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
    7. Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate," IMF Working Papers 94/90, International Monetary Fund.
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    Cited by:
    1. Luc Eyraud, 2009. "Madagascar," IMF Working Papers 09/107, International Monetary Fund.
    2. 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).
    3. Elena Loukoianova & Plamen Iossifov, 2007. "Estimation of a Behavioral Equilibrium Exchange Rate Model for Ghana," IMF Working Papers 07/155, International Monetary Fund.
    4. Dubas, Justin M., 2009. "The Importance of the Exchange Rate Regime in Limiting Misalignment," World Development, Elsevier, vol. 37(10), pages 1612-1622, October.
    5. 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).

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