Estimation of the Equilibrium Real Exchange Rate for Malawi

Johan Mathisen

No 2003/104, IMF Working Papers from International Monetary Fund

Abstract: This paper computes Malawi's equilibrium real exchange rate as a function of its fundamentals as derived from economic theory. It finds evidence in favor of the equilibrium approach to exchange rate determination, with several variables (particularly government consumption and real per capita growth) found to drive movements in the time-varying equilibrium real exchange rate. The results also indicate that following a shock there is a rapid reversion of the real exchange rate to its time-varying equilibrium, with a half-life of reversion of about 11 months.

Keywords: WP; Malawi; Equilibrium Real Exchange Rate; Malawi equilibrium exchange rate; fiscal policy variable; utility function; expansionary fiscal policy; nominal exchange rate depreciation; Real exchange rates; Real effective exchange rates; Exchange rates; Terms of trade; Government consumption; Africa (search for similar items in EconPapers)
Pages: 25
Date: 2003-05-01
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Citations: View citations in EconPapers (17)

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