Sources of real exchange rate fluctuations: empirical evidence from nine African countries

Reference:

Ahmad, A. H. and Pentecost, E. J., 2009. Sources of real exchange rate fluctuations: empirical evidence from nine African countries. Manchester School, 77 (S1), pp. 66-84.

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Official URL:

http://dx.doi.org/10.1111/j.1467-9957.2009.02119.x

Abstract

We investigate the sources of real exchange rate fluctuations in a sample of nine African countries from 1980:01 to 2005:04, using a trivariate structural vector autoregression. The analysis is motivated by a stochastic sticky-price model from which three shocks are identified; demand, supply and monetary shocks. The results indicate that demand shocks are the predominant source of real exchange rate movements in these countries, although nominal shocks have also played a small but significant role in South Africa and Botswana, and supply shocks seem to be of some relevance for Algeria, Egypt and Tanzania.

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