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Tanzania's Equilibrium Real Exchange Rate

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  • Niko Hobdari
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    Abstract

    Tanzania''s real effective exchange rate (REER) has depreciated sharply since end-2000, reversing the appreciation that took place in the second half of the 1990s. Single-country and panel data estimates, and the external sustainability approach, suggest that Tanzania''s REER is currently modestly undervalued relative to its estimated equilibrium level. Looking forward, a modest trend appreciation of the equilibrium REER is expected, consistent with continued high GDP growth and an expected recovery in terms of trade. In addition, capital inflows to Tanzania could be significantly higher than currently expected, to take advantage of Tanzania''s natural resources and strong policy framework. If so, these inflows would contribute to an additional appreciation by as much as 20 percent of the equilibrium REER.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/138.

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    Length: 23
    Date of creation: 01 May 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/138

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    Related research

    Keywords: Exchange rate depreciation; Exchange rates; Fiscal sustainability; Terms of trade; Capital inflows; reer; current account; current account deficit; external debt; current account balance; export growth; external borrowing; current account deficits; real effective exchange rate; balance of payments; current account balances; commercial borrowing; export sector; public and publicly guaranteed; external liabilities; commodity export; export prices; debt relief; commodity export sector; debt sustainability analysis; commodity exports; substantial debt; rapid export growth; current account surpluses; capital flows; current accounts; debt sustainability; traditional commodity exports; external shocks; substantial debt relief; liquidity injections; traditional exports; oil exporting; public sector borrowing; public external debt; reserve accumulation;

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    1. Chinn, Menzie D. & Prasad, Eswar S., 2003. "Medium-term determinants of current accounts in industrial and developing countries: an empirical exploration," Journal of International Economics, Elsevier, Elsevier, vol. 59(1), pages 47-76, January.
    2. Joannes Mongardini & Alexander Chudik, 2007. "In Search of Equilibrium," IMF Working Papers 07/90, International Monetary Fund.
    3. Andrew Berg & Mumtaz Hussain & Shaun K. Roache & Amber Mahone & Tokhir N. Mirzoev & Shekhar Aiyar, 2007. "The Macroeconomics of Scaling Up Aid," IMF Occasional Papers 253, International Monetary Fund.
    4. Menzie D. Chinn & Hiro Ito, 2005. "Current Account Balances, Financial Development and Institutions: Assaying the World "Savings Glut"," NBER Working Papers 11761, National Bureau of Economic Research, Inc.
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