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The Relationship Between the Foreign Exchange Regime and Macroeconomic Performance in Eastern Africa

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  • International Monetary Fund
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    Abstract

    This study examines the relationship between the foreign exchange regime and macroeconomic performance in Eastern Africa. The study focuses on seven countries, five of which decisively liberalized their foreign exchange regimes. The study assesses the relationship between (i) growth and various determinants, including the exchange regime, the real exchange rate, and current account liberalization; and (ii) inflation and various determinants, including lagged inflation, the nominal exchange rate, the exchange regime, and liberalization. We find that in our sample, for the determinants of growth, investment and the real exchange rate are significant determinants but not the exchange regime or liberalization; and for inflation, the lagged inflation rate, nominal exchange rate, and the de facto regime are significant. Exchange rate pass-through is limited.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/148.

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    Length: 54
    Date of creation: 01 Jun 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/148

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    Related research

    Keywords: Economic growth; East Africa; exchange rate; inflation; foreign exchange; exchange rate regime; exchange rate regimes; exchange rate pass; effective exchange rate; real exchange rate; money growth; exchange rates; terms of trade; real effective exchange rate; nominal effective exchange rate; lower inflation; nominal exchange rate; flexible exchange rate; exchange restrictions; black market; inflation performance; monetary policy; inflation rate; exchange rate movements; flexible exchange rate regimes; low inflation; equilibrium exchange rate; real exchange rates; de facto exchange rate regime; macroeconomic performance; exchange rate changes; basket of currencies; exchange arrangements; flexible exchange rate regime; overvalued exchange rates; exchange rate appreciation; rate of inflation; floating exchange rates; exchange rate arrangements; monetary economics; macroeconomic stability; high inflation; de facto exchange rate regimes; inflation equation; exchange rate stability; exchange rate reforms; relative price; foreign currency; flexible exchange rates; currency units; fixed exchange rate; exchange rate volatility; intermediate exchange rate regimes; exchange rate regime durability; exchange rate behavior; exchange rate volatilities; exchange rate change; price inflation; currency convertibility; real exchange rate volatilities; real exchange rate appreciation; fixed exchange rates; inflation rates; exchange rate information; foreign exchange market; exchange rate devaluations; exchange rate flexibility; aggregate demand; history of exchange rate; intermediate exchange rate; exchange rate dummies; exchange rate classification; exchange rate misalignment; inflationary expectations; hard currency; nominal exchange rates; rising inflation; exchange rate regime classification;

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    1. Bouakez, Hafedh & Rebei, Nooman, 2008. "Has exchange rate pass-through really declined? Evidence from Canada," Journal of International Economics, Elsevier, vol. 75(2), pages 249-267, July.
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    3. Devereux, Michael B. & Yetman, James, 2010. "Price adjustment and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 181-200, February.
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    9. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
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    12. Philipp Harms & Marco Kretschmann, 2009. "Words, Deeds And Outcomes: A Survey On The Growth Effects Of Exchange Rate Regimes," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 139-164, 02.
    13. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
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    15. Kohlscheen, E, 2009. "Emerging Floaters : Pass-Throughs and (Some) New Commodity Currencies," The Warwick Economics Research Paper Series (TWERPS) 905, University of Warwick, Department of Economics.
    16. Paul De Grauwe & Gunther Schnabl, 2008. "Exchange Rate Stability, Inflation, and Growth in (South) Eastern and Central Europe," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 530-549, 08.
    17. Mahvash Saeed Qureshi & Atish R. Ghosh & Charalambos G. Tsangarides, 2011. "Words vs. Deeds," IMF Working Papers 11/112, International Monetary Fund.
    18. Atish R. Ghosh & Jonathan David Ostry & Charalambos G. Tsangarides, 2011. "Exchange Rate Regimes and the Stability of the International Monetary System," IMF Occasional Papers 270, International Monetary Fund.
    19. Petreski, Marjan, 2009. "Exchange-rate regime and economic growth: a review of the theoretical and empirical literature," Economics Discussion Papers 2009-31, Kiel Institute for the World Economy.
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    Cited by:
    1. Jaroslava Durčáková & Ondřej Šíma, 2013. "BRICS: Exchange Rate policy in Context of Internal and External Equilibrium," Český finanční a účetní časopis, University of Economics, Prague, vol. 2013(4), pages 7-29.

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