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De Jure Versus De Facto Exchange Rate Regimes in Sub-Saharan Africa

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  • International Monetary Fund

Abstract

There are 22 countries in Sub-Saharan Africa (SSA) with floating exchange rate regimes, de jure. Some target the money supply or the inflation rate; others practice "managed floating." Statistical analysis on monthly data for the past decade reveals that in most cases these exchange rate regimes can be approximated surprisingly well by a soft peg to a basket dominated by the US dollar. The weight on the dollar appears to have fallen somewhat across the continent in the aftermath of the global financial crisis. Replicating the model with weekly data for The Gambia suggests that the focus on the dollar might be even more pronounced at higher data frequencies. While there might be strong arguments in favor of limiting exchange rate volatility in SSA countries, soft-pegging to the dollar does not appear to be the best fit for them, given the currency structure of their external trade and finance. The paper concludes by discussing some policy options for SSA countries with flexible exchange rates, in the context of an illustrative recent country case.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/198.

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Length: 27
Date of creation: 01 Aug 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/198

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Keywords: Exchange rate regimes; Currency pegs; Floating exchange rates; exchange rate; exchange rates; exchange rate regime; equation; dollar exchange rate; floating exchange rate; floating exchange rate regimes; de facto exchange rate regimes; statistical significance; standard errors; dollar exchange rates; correlation; statistics; basket of currencies; statistical analysis; financial statistics; foreign exchange; statistical model; currency markets; exchange rate pass; independent variables; flexible exchange rates; empirical model; currency basket; data analysis; exchange rate volatility; de facto exchange rate regime; preliminary data analysis; foreign exchange market; missing data; standard deviation; nominal exchange rate; fixed exchange rates; floating exchange rate regime; rate of change; samples; depreciating exchange rate; exchange rate increases; volatile exchange rates; effective exchange rates; exchange rate depreciation; exchange rate risk; exchange rate fluctuations; exchange rate stability; exchange arrangements; exchange rate policies; exchange restrictions; fixed exchange rate regime; fixed exchange rate; exchange rate flexibility;

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  1. Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," Research Department Publications, Inter-American Development Bank, Research Department 4205, Inter-American Development Bank, Research Department.
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  3. Eduardo Borensztein & Carmen Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Working Papers 94/9, International Monetary Fund.
  4. Frankel, Jeffrey & Wei, Shang-Jin, 2008. "Estimation of De Facto Exchange Rate Regimes: Synthesis of The Techniques for Inferring Flexibility and Basket Weights," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp08-026, Harvard University, John F. Kennedy School of Government.
  5. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  6. Guillermo A. Calvo, 2005. "Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262033348, December.
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