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De Jure Versus De Facto Exchange Rate Regimes in Sub-Saharan Africa

  • International Monetary Fund

There are 22 countries in Sub-Saharan Africa (SSA) with floating exchange rate regimes, de jure. Some target the money supply or the inflation rate; others practice "managed floating." Statistical analysis on monthly data for the past decade reveals that in most cases these exchange rate regimes can be approximated surprisingly well by a soft peg to a basket dominated by the US dollar. The weight on the dollar appears to have fallen somewhat across the continent in the aftermath of the global financial crisis. Replicating the model with weekly data for The Gambia suggests that the focus on the dollar might be even more pronounced at higher data frequencies. While there might be strong arguments in favor of limiting exchange rate volatility in SSA countries, soft-pegging to the dollar does not appear to be the best fit for them, given the currency structure of their external trade and finance. The paper concludes by discussing some policy options for SSA countries with flexible exchange rates, in the context of an illustrative recent country case.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/198.

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Length: 27
Date of creation: 01 Aug 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/198
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  1. Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," IDB Publications (Working Papers) 6467, Inter-American Development Bank.
  2. Eduardo Borensztein & Carmen M. Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 236-261, June.
  3. Jeffrey Frankel & Shang-Jin Wei, 2008. "Estimation of De Facto Exchange Rate Regimes: Synthesis of the Techniques for Inferring Flexibility and Basket Weights," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 384-416, July.
  4. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  5. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  6. Guillermo A. Calvo, 2005. "Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033348, June.
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