EXCHANGE RATE MISALIGNMENT AND FINANCIAL LIBERALISATION: Exchange Rate Misalignment and Financial Liberalisation: Empirical Evidence and Macroeconomic Implications for Uganda, 1993-2004
David Kihangire and
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Charles Abuka: PhD
International Finance from University Library of Munich, Germany
This study empirically investigates Uganda’s equilibrium real exchange rate (EREER) during 1993M1 to 2004M12. Using ARDL approach to cointegration, we find that a long-run relationship exists between Uganda’s REER and its determinants, driven largely by trade balance, openness, fiscal deficits, and capacity utilization. Consequently, we estimated a long-run EREER model. Comparing the actual REER and the EREER reveals that Uganda’s REER is overvalued over the recent period, 2003-2004. The macroeconomic financial costs of this overvaluation are found to be quite high for the Ugandan economy. Policy-wise, the results suggest that appropriate policy must aim at avoiding exchange rate overvaluation in support of external macroeconomic stability.
Keywords: Exchange Rate Misalignment; Exports; Uganda; equilibrium exchange rate; Overvaluation. (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 19 pages
Note: Type of Document - doc; pages: 19. This is a working paper, which will appear in Bank of Uganda Staff Papers, 2005
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0505017
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