Real Exchange Rate Misalignments in Tanzania

Deogratius Kimolo () and Stanislaus Mrema

MPRA Paper from University Library of Munich, Germany

Abstract: The study uses a real exchange rate equilibrium (REER) technique to examine real exchange rate misalignments in Tanzania, through the cointegration technique. The empirical findings reveal that the real exchange rate misalignment has decreased significantly over recent years, and the real effective exchange rate has been evolving close to the long-term equilibrium. The findings strongly suggest that the underlying monetary and exchange rate policies were crucial in bringing the real exchange rate back to equilibrium in line with medium-term fundamentals recently. As a result, it is suggested that the existing monetary and exchange rate policies be maintained. While the monetary policy will contribute to real exchange rate stability through low inflation, flexible exchange rate policy will contribute to real exchange rate stability through nominal exchange rate adjustment.

Keywords: Foreign Exchange; Foreign Exchange Policy (search for similar items in EconPapers)
JEL-codes: F31 O24 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:114672

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