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

  • John Cady
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    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.

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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=16279
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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/28.

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    Length: 19
    Date of creation: 01 Feb 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/28
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    1. 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.
    2. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
    3. Dominique Desruelle & Alessandro Zanello, 1997. "A Primeron the IMF's Information Notice System," IMF Working Papers 97/71, International Monetary Fund.
    4. 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.
    5. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
    6. Claudio Paiva, 2001. "Competitiveness and the Equilibrium Exchange Rate in Costa Rica," IMF Working Papers 01/23, International Monetary Fund.
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