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EXCHANGE RATE MISALIGNMENT AND FINANCIAL LIBERALISATION: Exchange Rate Misalignment and Financial Liberalisation: Empirical Evidence and Macroeconomic Implications for Uganda, 1993-2004

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Author Info
David Kihangire (PhD)
Charles Abuka (PhD)

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Abstract

This study empirically investigates Uganda’s equilibrium real exchange rate (EREER) during 1993M1 to 2004M12. Using ARDL approach to cointegration, we find that a long-run relationship exists between Uganda’s REER and its determinants, driven largely by trade balance, openness, fiscal deficits, and capacity utilization. Consequently, we estimated a long-run EREER model. Comparing the actual REER and the EREER reveals that Uganda’s REER is overvalued over the recent period, 2003-2004. The macroeconomic financial costs of this overvaluation are found to be quite high for the Ugandan economy. Policy-wise, the results suggest that appropriate policy must aim at avoiding exchange rate overvaluation in support of external macroeconomic stability.

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Publisher Info
Paper provided by EconWPA in its series International Finance with number 0505017.

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Length: 19 pages
Date of creation: 31 May 2005
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Handle: RePEc:wpa:wuwpif:0505017

Note: Type of Document - doc; pages: 19. This is a working paper, which will appear in Bank of Uganda Staff Papers, 2005
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Web page: http://129.3.20.41

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Related research
Keywords: Exchange Rate Misalignment; Exports; Uganda; equilibrium exchange rate; Overvaluation.;

Find related papers by JEL classification:
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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  1. Abbott, Andrew & Darnell, Adrian C & Evans, Lynne, 2001. "The Influence of Exchange Rate Variability on UK Exports," Applied Economics Letters, Taylor and Francis Journals, vol. 8(1), pages 47-49, January. [Downloadable!] (restricted)
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