Exchange Rate and Foreign Interest Rate Linkages for Sub-Saharan Africa Floaters

Alun Thomas

No 2012/208, IMF Working Papers from International Monetary Fund

Abstract: The paper considers the determinants of exchange rate movements among sub-Saharan countries that have flexible exchange rate regimes. The determinants are based on the law of one price and interest parity conditions. Results indicate that the exchange rates have responded significantly to changes in the US Treasury bill rate and to the EMBI spread in recent years. The effects are more important for countries with open capital accounts. On the other hand the paper does not provide any support for the interest rate parity theory because domestic interest rates have no bearing on exchange rate movements.

Keywords: WP; exchange rate; EMBI interest rate; change-Robustness Checks; determination Dornbusch; Interest Rate; Interest Parity; interest rate differential; Change-Robustness check; exchange rate movement; Exchange rates; Nominal effective exchange rate; Treasury bills and bonds; Capital account; Exchange rate adjustments; Africa; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 21
Date: 2012-08-01
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Citations: View citations in EconPapers (3)

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