SOURCES OF REAL EXCHANGE RATE FLUCTUATIONS: EMPIRICAL EVIDENCE FROM NINE AFRICAN COUNTRIES

Ahmad Hassan Ahmad and Eric Pentecost

Manchester School, 2009, vol. 77, issue s1, 66-84

Abstract: We investigate the sources of real exchange rate fluctuations in a sample of nine African countries from 1980:01 to 2005:04, using a trivariate structural vector autoregression. The analysis is motivated by a stochastic sticky‐price model from which three shocks are identified; demand, supply and monetary shocks. The results indicate that demand shocks are the predominant source of real exchange rate movements in these countries, although nominal shocks have also played a small but significant role in South Africa and Botswana, and supply shocks seem to be of some relevance for Algeria, Egypt and Tanzania.

Date: 2009
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