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South Sudan Referundum: A Macroeconomic Analysis of Post-Secession Scenario

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  • Onour, Ibrahim

Abstract

The purpose of this paper to analyse financial stability in small open economy, with dual foreign exchange markets, enduring political uncertainty and facing the likelihood of perminant adverse export shock. The finding in the paper indicate, given capital outflow is maintained at minimal level, there exist stable equilibrium exchange rates, despite the adverse export shock. However, for the foreign exchange market to adjust more quickly towards a new steady state equilibrium the central bank need to build sufficient foreign exchange reserves. If the reserve level remains at low levels the recovery process from the adverse shock will take longer time, as periodic devaluation of the official rate remain the only available tool for the central bank. When expanding fiscal deficit and declining official reserves force the government adopting a floating exchange rate system, our model predict depreciation of foreign exchange rate is identical to domestic money growth.

Suggested Citation

  • Onour, Ibrahim, 2010. "South Sudan Referundum: A Macroeconomic Analysis of Post-Secession Scenario," MPRA Paper 29897, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:29897
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    References listed on IDEAS

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    1. Rudiger Dornbusch & Daniel Valente Dantas & Clarice Pechman & Roberto de Rezende Rocha & Demetrio SimÅes, 1983. "The Black Market for Dollars in Brazil," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(1), pages 25-40.
    2. Chander Kant, 2002. "What is Capital Flight?," The World Economy, Wiley Blackwell, vol. 25(3), pages 341-358, March.
    3. Kiguel, Miguel & O'Connell, Stephen A, 1995. "Parallel Exchange Rates in Developing Countries," The World Bank Research Observer, World Bank, vol. 10(1), pages 21-52, February.
    4. Onour, Ibrahim & Cameron, Norman, 1997. "Parallel Market Premia and Misalignment of Official Exchange Rates," MPRA Paper 15537, University Library of Munich, Germany.
    5. Pinto, Brian, 1989. "Black Market Premia, Exchange Rate Unification, and Inflation in Sub-Saharan Africa," The World Bank Economic Review, World Bank, vol. 3(3), pages 321-338, September.
    6. Ibrahim Onour, 2000. "Unification of Dual Foreign Exchange Markets," Economic Change and Restructuring, Springer, vol. 33(3), pages 171-184, October.
    7. Saul Lizondo, Jose, 1987. "Unification of dual exchange markets," Journal of International Economics, Elsevier, vol. 22(1-2), pages 57-77, February.
    8. Homi Kharas & Brian Pinto, 1989. "Exchange Rate Rules, Black Market Premia and Fiscal Deficits: The Bolivian Hyperinflation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 435-447.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    parallel rate; official rate; Stability; Steady-state;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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