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Exchange Rate and Foreign Interest Rate Linkages for Sub-Saharan Africa Floaters

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  • Alun H. Thomas
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    Abstract

    The paper considers the determinants of exchange rate movements among sub-Saharan countries that have flexible exchange rate regimes. The determinants are based on the law of one price and interest parity conditions. Results indicate that the exchange rates have responded significantly to changes in the US Treasury bill rate and to the EMBI spread in recent years. The effects are more important for countries with open capital accounts. On the other hand the paper does not provide any support for the interest rate parity theory because domestic interest rates have no bearing on exchange rate movements.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/208.

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    Length: 21
    Date of creation: 01 Aug 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/208

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    Related research

    Keywords: Exchange rates; Flexible exchange rate policy; Floating exchange rates; Interest rates;

    This paper has been announced in the following NEP Reports:

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    1. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Center for International Economics, Working Paper Series qt5pv1j341, Center for International Economics, UC Santa Cruz.
    2. Sami Alpanda & Kevin Kotzé & Geoffrey Woglom, 2010. "The Role Of The Exchange Rate In A New Keynesian Dsge Model For The South African Economy," South African Journal of Economics, Economic Society of South Africa, vol. 78(2), pages 170-191, 06.
    3. Moses M. Sichei & Tewodros G. Gebreselasie & Olusegun A. Akanbi, 2005. "An Econometric Model of the Rand-US Dollar Nominal Exchange Rate," Working Papers 200514, University of Pretoria, Department of Economics.
    4. Todd E. Clark & Kenneth D. West, 2005. "Approximately normal tests for equal predictive accuracy in nested models," Research Working Paper RWP 05-05, Federal Reserve Bank of Kansas City.
    5. Miguel Lacerda & Johannes W. Fedderke & Linda M. Haines, 2010. "Testing For Purchasing Power Parity And Uncovered Interest Parity In The Presence Of Monetary And Exchange Rate Regime Shifts," South African Journal of Economics, Economic Society of South Africa, vol. 78(4), pages 363-382, December.
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