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The Equilibrium Real Exchange Rate of the Malagasy Franc; Estimation and Assessment

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  • John Cady

Abstract

Employing cointegration techniques, the long-run determinants of Madagascar's real exchange rate are examined from a stock-flow perspective. The long-run behavior of the real effective exchange rate is explained by the net foreign asset position and factors affecting trade flows. An index of the long-run equilibrium real exchange rate is developed to assess the degree of misalignment. The general conclusions are that the Malagasy franc has experienced significant misalignment in the past, but that the recent appreciation of the real effective exchange rate is consistent with changes in the fundamentals, particularly anticipated improvements in the net foreign assets position stemming from Madagascar's eligibility for assistance under the enhanced HIPC Initiative.

Suggested Citation

  • John Cady, 2003. "The Equilibrium Real Exchange Rate of the Malagasy Franc; Estimation and Assessment," IMF Working Papers 03/28, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/28
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16279
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    References listed on IDEAS

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    1. Dominique Desruelle & Alessandro Zanello, 1997. "A Primeron the IMF's Information Notice System," IMF Working Papers 97/71, International Monetary Fund.
    2. Claudio A Paiva, 2001. "Competitiveness and the Equilibrium Exchange Rate in Costa Rica," IMF Working Papers 01/23, International Monetary Fund.
    3. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
    4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    5. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
    6. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank.
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    Citations

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    Cited by:

    1. Luc Eyraud, 2009. "Madagascar; A Competitiveness and Exchange Rate Assessment," IMF Working Papers 09/107, International Monetary Fund.
    2. Aaron G Grech, "undated". "Assessing employment in Malta," CBM Working Papers WP/01/2006, Central Bank of Malta.
    3. Dubas, Justin M., 2009. "The Importance of the Exchange Rate Regime in Limiting Misalignment," World Development, Elsevier, vol. 37(10), pages 1612-1622, October.
    4. Elena Loukoianova & Plamen K Iossifov, 2007. "Estimation of a Behavioral Equilibrium Exchange Rate Model for Ghana," IMF Working Papers 07/155, International Monetary Fund.
    5. Cheng, Fuzhi & Orden, David, 2005. "Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates: Empirical Evidence from India and China," 2005 Annual meeting, July 24-27, Providence, RI 19121, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Cheng, Fuzhi & Orden, David, 2005. "Exchange rate misalignment and its effects on agricultural producer support estimates," MTID discussion papers 81, International Food Policy Research Institute (IFPRI).

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