The Equilibrium Real Exchange Rate of the Malagasy Franc: Estimation and Assessment

Author/Editor:

John Cady

Publication Date:

February 1, 2003

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:

Employing cointegration techniques, the long-run determinants of Madagascar's real exchange rate are examined from a stock-flow perspective. The long-run behavior of the real effective exchange rate is explained by the net foreign asset position and factors affecting trade flows. An index of the long-run equilibrium real exchange rate is developed to assess the degree of misalignment. The general conclusions are that the Malagasy franc has experienced significant misalignment in the past, but that the recent appreciation of the real effective exchange rate is consistent with changes in the fundamentals, particularly anticipated improvements in the net foreign assets position stemming from Madagascar's eligibility for assistance under the enhanced HIPC Initiative.

Series:

Working Paper No. 2003/028

Subject:

Econometric analysis Estimation techniques Exchange rate arrangements External position Foreign assets Foreign exchange International trade Real effective exchange rates Real exchange rates Terms of trade

English

Publication Date:

February 1, 2003

ISBN/ISSN:

9781451844689/1018-5941

Stock No:

WPIEA0282003

Pages:

19

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