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Exchange Rate Regimes and Trade: Is Africa Different?

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  • Mahvash Saeed Qureshi
  • Charalambos G. Tsangarides

Abstract

This paper revisits the link between exchange rate regimes and trade in the context of Africa’s exchange rate arrangements. Applying an augmented gravity model that includes measures of currency unions and pegged regimes, the paper compares Africa’s experience with that of the world. Our results suggest that both currency unions and direct pegs promote bilateral trade in Africa vis-à-vis more flexible exchange rate regimes,and that their effect is almost double for the region than that for an average country in the world sample. Further, we find evidence that the effect of conventional pegs is at least as large as that of currency unions in Africa, and that the benefits of fixed exchange rate regimes stem through channels in addition to reduced exchange rate volatility.

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File URL: http://www.wider.unu.edu/stc/repec/pdfs/wp2011/wp2011-14.pdf
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Bibliographic Info

Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Working Paper WP2011/14.

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Length: 29 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:unu:wpaper:wp2011-14

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Keywords: currency unions; fixed exchange rate regimes; Africa;

References

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  2. Paul R. Masson & Xavier Debrun & Catherine A. Pattillo, 2002. "Monetary Union in West Africa," IMF Working Papers 02/226, International Monetary Fund.
  3. Yongcheol Shin & Laura Serlenga, 2007. "Gravity models of intra-EU trade: application of the CCEP-HT estimation in heterogeneous panels with unobserved common time-specific factors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 361-381.
  4. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  5. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  6. Mahvash Saeed Qureshi & Charalambos G. Tsangarides, 2010. "The Empirics of Exchange Rate Regimes and Trade," IMF Working Papers 10/48, International Monetary Fund.
  7. Christopher Adam & David Cobham, 2007. "Exchange rate regimes and trade," Money Macro and Finance (MMF) Research Group Conference 2006 9, Money Macro and Finance Research Group.
  8. Mahvash Saeed Qureshi & Charalambos G. Tsangarides, 2006. "What is Fuzzy About Clustering in West Africa?," IMF Working Papers 06/90, International Monetary Fund.
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Cited by:
  1. Campbell, Douglas L., 2011. "Estimating the impact of currency unions on trade using a dynamic gravity framework," MPRA Paper 35531, University Library of Munich, Germany.

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