Estimation of the Equilibrium Real Exchange Rate for Malawi

May 1, 2003

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Exchange rates, Foreign exchange, Government consumption, International trade, National accounts, Real effective exchange rates, Real exchange rates, Terms of trade

Keywords: Africa, Equilibrium Real Exchange Rate, Exchange rates, expansionary fiscal policy, fiscal policy variable, Government consumption, Malawi, Malawi equilibrium exchange rate, nominal exchange rate depreciation, Real effective exchange rates, Real exchange rates, Terms of trade, utility function, WP

Pages:
25
Volume:
2003
DOI:
https://doi.org/10.5089/9781451852783.001
Issue:
104
Series:
Working Paper No. 2003/104
Stock No:
WPIEA1042003
ISBN:
9781451852783
ISSN:
1018-5941

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