Real exchange rate misalignment in Senegal: effect on growth

DEGUENONVO, Cédric (2017): Real exchange rate misalignment in Senegal: effect on growth.

Abstract

Is there an overvaluation of the real exchange rate? What is the effect of devaluation on economic growth? This empirical study attempts to answer these two important questions in the economic context of Senegal, using 1980 - 2014 data. To answer the first question, we used the BEER (Behavioral Equilibrium Exchange Rate) approach and Rodrik's approach. As for the second question, we used the ARDL (AutoRegressive Distributed Lag) cointegration model. Our results show that since 2008, there has been a trend towards the overvaluation of the CFAF in Senegal. Senegal, for example, recorded an overvaluation of the real exchange rate estimated at between 10% and 35% in 2013 and 2014. In addition, our results show that misalignment has a positive impact on long-term economic growth, in particular devaluation in situations of overvaluation. In addition, a devaluation of 10% leads to an increase in economic growth of 0.64 percentage points. Our results are based on all the robustness tests performed.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate misalignment, Senegal, ARDL, Fully modified OLS
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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