Purchasing Power Parities in Five East African Countries: Burundi, Kenya, Rwanda, Tanzania, and Uganda

Noureddine Krichene

No 1998/148, IMF Working Papers from International Monetary Fund

Abstract: In a case study of Burundi, Kenya, Rwanda, Tanzania, and Uganda, this paper finds that bilateral real exchange rates revert to a long-term equilibrium in line with purchasing power parities, implying that these countries constitute an integrated trading zone, their markets are interdependent and arbitrage works efficiently, and intraregional competitiveness is preserved. These findings are partly explained by the flexibility of nominal exchange rates and prices and the absence of long-term productivity differences among these countries. To strengthen market integration, foster private sector development, and enhance growth prospects, the paper emphasizes the importance of increased trade, competitive labor markets, flexible exchange rates, and convergence of macroeconomic and structural policies.

Keywords: WP; nominal exchange rate; U.S. dollar; inflation rate; PPP theory; Purchasing power parity; competitiveness; cointegration analysis; vis-à-vis Tanzania; equilibrium path; currency depreciation; adjustment coefficient; Uganda shilling; nominal exchange rate determination; Exchange rates; Real exchange rates; Public investment and public-private partnerships (PPP); Currencies; Africa (search for similar items in EconPapers)
Pages: 37
Date: 1998-10-01
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Citations: View citations in EconPapers (20)

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