The Relationship between the Foreign Exchange Regime and Macroeconomic Performance in Eastern Africa

55 Pages Posted: 9 Aug 2012

See all articles by Janet Gale Stotsky

Janet Gale Stotsky

International Monetary Fund (IMF)

Manuk Ghazanchyan

International Monetary Fund (IMF)

Olumuyiwa Adedeji

International Monetary Fund (IMF)

Nils O. Maehle

International Monetary Fund (IMF)

Date Written: June 2012

Abstract

This study examines the relationship between the foreign exchange regime and macroeconomic performance in Eastern Africa. The study focuses on seven countries, five of which decisively liberalized their foreign exchange regimes. The study assesses the relationship between (i) growth and various determinants, including the exchange regime, the real exchange rate, and current account liberalization; and (ii) inflation and various determinants, including lagged inflation, the nominal exchange rate, the exchange regime, and liberalization. We find that in our sample, for the determinants of growth, investment and the real exchange rate are significant determinants but not the exchange regime or liberalization; and for inflation, the lagged inflation rate, nominal exchange rate, and the de facto regime are significant. Exchange rate pass-through is limited.

Keywords: Exchange Rate Reforms And Regimes, Growth, And Inflation, East Africa, Economic Growth

JEL Classification: E60, F30, F41, F43

Suggested Citation

Stotsky, Janet G. and Ghazanchyan, Manuk and Adedeji, Olumuyiwa and Maehle, Nils O., The Relationship between the Foreign Exchange Regime and Macroeconomic Performance in Eastern Africa (June 2012). IMF Working Paper No. 12/148. Available at SSRN: https://ssrn.com/abstract=2127040

Janet G. Stotsky (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Manuk Ghazanchyan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Olumuyiwa Adedeji

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Nils O. Maehle

International Monetary Fund (IMF) ( email )

1700 19th Street, NW
Washington, DC 20431
United States

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