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

22 Pages Posted: 1 Nov 2012

See all articles by Alun H. Thomas

Alun H. Thomas

International Monetary Fund (IMF) - European Department

Date Written: August 2012

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: Exchange Rate, Interest Rate, Interest Parity, Exchange Rates, Flexible Exchange Rate Policy, Floating Exchange Rates, Interest Rates

JEL Classification: F31

Suggested Citation

Thomas, Alun, Exchange Rate and Foreign Interest Rate Linkages for Sub-Saharan Africa Floaters (August 2012). IMF Working Paper No. 12/208, Available at SSRN: https://ssrn.com/abstract=2169754

Alun Thomas (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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