Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia
In both developing and developed economies, academic and policy discussions have consistently emphasized that achieving stable economic growth and maintaining internal and external balance require an exchange rate aligned with its long-term equilibrium value. This paper examines the impact of real e...
| Main Authors: | , |
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| Format: | Artículo preliminar |
| Language: | Inglés |
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International Food Policy Research Institute
2024
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| Subjects: | |
| Online Access: | https://hdl.handle.net/10568/172441 |
| _version_ | 1855516005521948672 |
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| author | Alemnew, Teklebirhan Taffesse, Alemayehu Seyoum |
| author_browse | Alemnew, Teklebirhan Taffesse, Alemayehu Seyoum |
| author_facet | Alemnew, Teklebirhan Taffesse, Alemayehu Seyoum |
| author_sort | Alemnew, Teklebirhan |
| collection | Repository of Agricultural Research Outputs (CGSpace) |
| description | In both developing and developed economies, academic and policy discussions have consistently emphasized that achieving stable economic growth and maintaining internal and external balance require an exchange rate aligned with its long-term equilibrium value. This paper examines the impact of real exchange rate misalignment on Ethiopia's economic growth from 1980 to 2022. The study begins by estimating the equilibrium real exchange rate using the Behavioral Equilibrium Exchange Rate (BEER) approach to calculate the misalignments. It then analyzes the effects of these misalignments on economic growth using Vector Autoregressive (VAR) and Hansen's (2000) threshold regression model. The VAR and Impulse Response Function (IRF) analyses reveal that real exchange rate misalignments have an immediate positive impact on economic growth, which diminishes between the eighth and sixteenth years and stabilizes as a permanent long-term effect. The threshold regression results indicate that undervaluation of the Ethiopian Birr enhances economic growth up to a 13.95% deviation from the equilibrium real exchange rate, while overvaluation supports growth up to a 7.15% threshold. Beyond these limits, misalignments hinder growth. The study underscores the importance of avoiding excessive deviations from the equilibrium exchange rate to sustain economic growth. Furthermore, it highlights the need for consistent macroeconomic policies to minimize the gap between the actual and equilibrium real exchange rates. These findings emphasize the critical role of exchange rate policy in promoting sustainable economic development in Ethiopia. |
| format | Artículo preliminar |
| id | CGSpace172441 |
| institution | CGIAR Consortium |
| language | Inglés |
| publishDate | 2024 |
| publishDateRange | 2024 |
| publishDateSort | 2024 |
| publisher | International Food Policy Research Institute |
| publisherStr | International Food Policy Research Institute |
| record_format | dspace |
| spelling | CGSpace1724412025-11-06T05:18:30Z Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia Alemnew, Teklebirhan Taffesse, Alemayehu Seyoum economic growth policies exchange rate In both developing and developed economies, academic and policy discussions have consistently emphasized that achieving stable economic growth and maintaining internal and external balance require an exchange rate aligned with its long-term equilibrium value. This paper examines the impact of real exchange rate misalignment on Ethiopia's economic growth from 1980 to 2022. The study begins by estimating the equilibrium real exchange rate using the Behavioral Equilibrium Exchange Rate (BEER) approach to calculate the misalignments. It then analyzes the effects of these misalignments on economic growth using Vector Autoregressive (VAR) and Hansen's (2000) threshold regression model. The VAR and Impulse Response Function (IRF) analyses reveal that real exchange rate misalignments have an immediate positive impact on economic growth, which diminishes between the eighth and sixteenth years and stabilizes as a permanent long-term effect. The threshold regression results indicate that undervaluation of the Ethiopian Birr enhances economic growth up to a 13.95% deviation from the equilibrium real exchange rate, while overvaluation supports growth up to a 7.15% threshold. Beyond these limits, misalignments hinder growth. The study underscores the importance of avoiding excessive deviations from the equilibrium exchange rate to sustain economic growth. Furthermore, it highlights the need for consistent macroeconomic policies to minimize the gap between the actual and equilibrium real exchange rates. These findings emphasize the critical role of exchange rate policy in promoting sustainable economic development in Ethiopia. 2024-12-31 2025-01-29T20:25:20Z 2025-01-29T20:25:20Z Working Paper https://hdl.handle.net/10568/172441 en Open Access application/pdf International Food Policy Research Institute Alemnew, Teklebirhan; and Taffesse, Alemayehu Seyoum. 2024. Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia. ESSP Working Paper 163. Washington, DC: International Food Policy Research Institute. https://hdl.handle.net/10568/172441 |
| spellingShingle | economic growth policies exchange rate Alemnew, Teklebirhan Taffesse, Alemayehu Seyoum Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia |
| title | Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia |
| title_full | Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia |
| title_fullStr | Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia |
| title_full_unstemmed | Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia |
| title_short | Real exchange rate misalignment and economic growth: An empirical analysis for Ethiopia |
| title_sort | real exchange rate misalignment and economic growth an empirical analysis for ethiopia |
| topic | economic growth policies exchange rate |
| url | https://hdl.handle.net/10568/172441 |
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