IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Behaviour of the Malawi Kwcha in a Liberalized Environment

  • Kisu Simwaka

    (Reserve Bank of Malawi, P.O. Box 30063, Lilongwe, Malawi)

Registered author(s):

    The paper investigates some of the key factors that have influenced exchange rate movements since the foreign exchange market was liberalized in 1994. The paper adopts a general empirical specification of the exchange rate equation involving the interest rate and price differentials, as well as current account balance and net external flows to explain the exchange rate movements. In general, the empirical results indicate that increases in interest rates differential, has tended to attract, though insignificantly, private capital flows, leading to exchange rate appreciation. Deteriorations in current account, and reductions in net capital flows, on the other hand, are associated with depreciation of exchange rate. A rise in the price differential (widening gap between domestic and foreign prices) leads to exchange rate depreciation. Subject to the usual limitations of any econometric enquiry, the above results offer the following tentative conclusions. The insignificant impact of interest rate differential on attracting capital flows points to the need for government to address some structural bottlenecks. For instance, infrastructure services such road network and utilities (electricity and water supply) require improvement. Hence the current policy of lowering interest rates is therefore in line with maintaining a relatively depreciated currency. This implies that a demand for low interest rate regime must lead to a relatively weak Malawi kwacha internationally. On the other hand, changes in the current account balance have a bearing on the exchange rate market. Thus policies that influence exports and imports of goods and services also determine exchange rate movements. Likewise, prospects concerning donor funding influence the direction of market forces in determining the exchange rate movements. Therefore, government’s credibility regarding the use of external public funds and implementation of related reforms is important in as far as stability of the foreign exchange market and overall macroeconomic stability are concerned.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://128.118.178.162/eps/mac/papers/0504/0504017.pdf
    Download Restriction: no

    File URL: http://128.118.178.162/eps/mac/papers/0504/0504017.ps.gz
    Download Restriction: no

    File URL: http://128.118.178.162/eps/mac/papers/0504/0504017.doc.gz
    Download Restriction: no

    Paper provided by EconWPA in its series Macroeconomics with number 0504017.

    as
    in new window

    Length: 23 pages
    Date of creation: 13 Apr 2005
    Date of revision:
    Handle: RePEc:wpa:wuwpma:0504017
    Note: Type of Document - txt; pages: 23
    Contact details of provider: Web page: http://128.118.178.162

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0504017. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.