Investigating the link between the exchange rate regime and underlying misalignments

Ferdinand Owoundi

Economics Bulletin, 2017, vol. 37, issue 2, 880-888

Abstract: This paper investigates the link between the exchange rate regime and underlying misalignments within two groups of Sub-Saharan African countries experiencing different exchange rate arrangements, with the goal of providing useful recommendations for economic policy. To this end, we first compute misalignments relying on the well-known behavioral approach to the equilibrium exchange rate which we modify by introducing dummy variables to account for the type of the exchange rate regime. Resulting misalignments are then compared through a mean comparison test. As a proof of consistency, we asses a new equilibrium exchange rate based on the so-called “Natural†approach to the equilibrium exchange rate and resulting misalignments are also compared through another mean comparison test. Overall, results show that the exchange rate regime is not responsible for misalignments or even their potential growth repercussions.

Keywords: Exchange Rate Regime; Equilibrium Exchange Rates; Misalignments; Pooled Mean Group (search for similar items in EconPapers)
JEL-codes: C1 F4 (search for similar items in EconPapers)
Date: 2017-04-22
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Working Paper: Investigating the link between the exchange rate regime and underlying misalignments (2017)
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