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EXCHANGE RATE MISALIGNMENT AND FINANCIAL LIBERALISATION: Exchange Rate Misalignment and Financial Liberalisation: Empirical Evidence and Macroeconomic Implications for Uganda, 1993-2004

Author

Listed:
  • David Kihangire

    (PhD)

  • Charles Abuka

    (PhD)

Abstract

This study empirically investigates Uganda’s equilibrium real exchange rate (EREER) during 1993M1 to 2004M12. Using ARDL approach to cointegration, we find that a long-run relationship exists between Uganda’s REER and its determinants, driven largely by trade balance, openness, fiscal deficits, and capacity utilization. Consequently, we estimated a long-run EREER model. Comparing the actual REER and the EREER reveals that Uganda’s REER is overvalued over the recent period, 2003-2004. The macroeconomic financial costs of this overvaluation are found to be quite high for the Ugandan economy. Policy-wise, the results suggest that appropriate policy must aim at avoiding exchange rate overvaluation in support of external macroeconomic stability.

Suggested Citation

  • David Kihangire & Charles Abuka, 2005. "EXCHANGE RATE MISALIGNMENT AND FINANCIAL LIBERALISATION: Exchange Rate Misalignment and Financial Liberalisation: Empirical Evidence and Macroeconomic Implications for Uganda, 1993-2004," International Finance 0505017, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0505017
    Note: Type of Document - doc; pages: 19. This is a working paper, which will appear in Bank of Uganda Staff Papers, 2005
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    References listed on IDEAS

    as
    1. Andrew Abbott & Adrian Darnell & Lynne Evans, 2001. "The influence of exchange rate variability on UK exports," Applied Economics Letters, Taylor & Francis Journals, vol. 8(1), pages 47-49.
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    More about this item

    Keywords

    Exchange Rate Misalignment; Exports; Uganda; equilibrium exchange rate; Overvaluation.;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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