Exchange Rate and Foreign Interest Rate Linkages for Sub-Saharan Africa Floaters
August 1, 2012
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Summary
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.
Subject: Balance of payments, Capital account, Exchange rate adjustments, Exchange rates, Financial institutions, Foreign exchange, Nominal effective exchange rate, Treasury bills and bonds
Keywords: Africa, Capital account, Change-Robustness check, change-Robustness Checks, determination Dornbusch, EMBI interest rate, exchange rate, Exchange rate adjustments, exchange rate movement, Exchange rates, Interest Parity, Interest Rate, interest rate differential, Nominal effective exchange rate, Sub-Saharan Africa, Treasury bills and bonds, WP
Pages:
21
Volume:
2012
DOI:
Issue:
208
Series:
Working Paper No. 2012/208
Stock No:
WPIEA2012208
ISBN:
9781475505580
ISSN:
1018-5941
