Setting the Stage for a National Currency in the West Bank and Gaza : The Choice of Exchange Rate Regime

Author/Editor:

Magda E. Kandil ; S. Beidas

Publication Date:

April 1, 2005

Electronic Access:

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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 sheds light on the quantitative behavioral responses of key economic variables in the Palestinian economy in the face of major economic shocks and draws implications for the choice of an exchange rate regime should a decision be taken to introduce a national currency. Time-series regression analysis shows that (i) wages and prices are flexible in the face of various shocks; (ii) the real wage appears rigid in the face of various shocks and increases despite higher unemployment; (iii) an appreciation of the new Israeli Sheqalim real effective exchange rate decreases exports and imports; and (iv) money demand appears stable in the face of exchange rate shocks. Although a fixed exchange rate system may initially be desirable to establish credibility of the new currency, some flexibility of the exchange rate is desirable over time.

Series:

Working Paper No. 05/70

Subject:

English

Publication Date:

April 1, 2005

ISBN/ISSN:

9781451860894/1018-5941

Stock No:

WPIEA2005070

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

34

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