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Setting the Stage for a National Currency in the West Bank and Gaza; The Choice of Exchange Rate Regime

Author

Listed:
  • Magda E. Kandil
  • S. Beidas

Abstract

This paper sheds light on the quantitative behavioral responses of key economic variables in the Palestinian economy in the face of major economic shocks and draws implications for the choice of an exchange rate regime should a decision be taken to introduce a national currency. Time-series regression analysis shows that (i) wages and prices are flexible in the face of various shocks; (ii) the real wage appears rigid in the face of various shocks and increases despite higher unemployment; (iii) an appreciation of the new Israeli Sheqalim real effective exchange rate decreases exports and imports; and (iv) money demand appears stable in the face of exchange rate shocks. Although a fixed exchange rate system may initially be desirable to establish credibility of the new currency, some flexibility of the exchange rate is desirable over time.

Suggested Citation

  • Magda E. Kandil & S. Beidas, 2005. "Setting the Stage for a National Currency in the West Bank and Gaza; The Choice of Exchange Rate Regime," IMF Working Papers 05/70, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/70
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    References listed on IDEAS

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    1. Delano Villanueva, 1993. "Options for Monetary and Exchange Arrangements in Transition Economies," IMF Policy Discussion Papers 93/12, International Monetary Fund.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    3. Jonathan David Ostry & Anne Marie Gulde & Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 95/121, International Monetary Fund.
    4. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, April.
    5. Kent Osband & Delano Villanueva, 1993. "Independent Currency Authorities: An Analytic Primer," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 202-216, March.
    6. Rina Bhattacharya, 2003. "Exchange Rate Regime Considerations for Jordan and Lebanon," IMF Working Papers 03/137, International Monetary Fund.
    7. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
    8. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    9. Richard K. Abrams, 1995. "The Design and Printing of Bank Notes; Considerations When Introducing a New Currency," IMF Working Papers 95/26, International Monetary Fund.
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    Cited by:

    1. repec:wsi:medjxx:v:04:y:2012:i:02:n:s1793812012500125 is not listed on IDEAS
    2. Tigran Poghosyan & Samya Beidas-Strom, 2011. "An Estimated Dynamic Stochastic General Equilibrium Model of the Jordanian Economy," IMF Working Papers 11/28, International Monetary Fund.

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