Estimating Egypt's Equilibrium Real Exchange Rate

In light of the real appreciation of the Egyptian pound over the last six years and Egypt’s lackluster export growth, questions of external competitiveness and exchange rate policy have arisen. This paper sheds light on these issues by estimating empirically Egypt’s equilibrium real exchange rate, that is, the rate that is consistent with fundamentals. The results show that, while the real exchange rate was substantially overvalued before 1993, today it is only moderately above the equilibrium rate. Moreover, the analysis shows that the recent appreciation of the pound does not indicate a worsening misalignment.

The Macroeconomics of Scaling Up Aid

This paper assesses the macroeconomic implications of scaling up aid for Benin in line with the Gleneagles commitment to double aid to poor countries over the next three years to reach $85 per capita by 2010 and keep it at that level thereafter. The analysis suggests that the additional aid inflows can be accommodated under Fund-supported programs without major disruptions to macroeconomic stability, provided the inflows are highly concessional and used effectively. There are, however, significant risks that the impact on growth and poverty reduction of the additional aid inflows could fall short of expectations, given Benin''s limited absorptive and administrative capacity.Benin;Absorptive capacity;Aid flows;Concessional aid;Debt sustainability;Domestic investment;Financial assistance;Financial risk;Fiscal sustainability;Infrastructure;Millennium Development Goals;monetary fund, central bank, inflation, foreign aid, current account, open market operations, current account deficit, debt relief, aggregate demand, monetary policy, government debt, external debt, public finance, domestic debt, money balances, monetary authorities, domestic currency, multilateral debt relief, optimal monetary policy, central banks, external debt burden, debt burden, debt management, public debt, debt relief initiative, debt stock, current account balance, debt service, monetary union, multilateral debt, external debt stock, bilateral donors, external shocks, domestic debt markets

Rachet Effects in Currency Substitution

Currency substitution is now a common issue in the design of monetary policy in most transition economies. This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic by including a ratchet variable in the model specification. The main conclusion of the paper is that, while some degree of persistence is present in the allocation of bank deposit, currency substitution in the economy at large has not yet reached a point where reversing it would be difficult. In this regard, there is still room for monetary policy to influence currency allocation in the private sector.

Grants, Remittances, and the Equilibrium Real Exchange Rate in Sub-Saharan African Countries

This paper builds on the methodology developed by Chudik and Mongardini (2007) to estimate the relationship between grants and remittances and the equilibrium real exchange rate in Sub-Saharan African (SSA) countries using panel techniques. The results indicate that grants and remittances are not associated, in the long run, with an appreciation of the real effective exchange in SSA and are therefore not likely to give rise to Dutch disease effects. These findings suggest that grants and remittances may be serving to ease supply constraints or boost productivity in the non-tradable sector in the recipient economies.Official development assistance;Africa;Capital inflows;Low-income developing countries;Inward remittances;Real effective exchange rates;Millennium Development Goals;Economic models;exchange rate, real exchange rate, remittances, exchange rates, real exchange rates, effective exchange rate, real effective exchange rate, effective exchange rates, foreign exchange, exchange rate overvaluation, real exchange rate appreciation, exchange rate appreciation, real exchange rate disequilibria, exchange rate misalignments, real exchange rate overvaluation, real exchange rate movements, impact of remittances, exchange rate movements, real exchange rate misalignments, real exchange rate disequilibrium, workers ? remittances, exchange rate index, international transfer, increase in remittances, exchange rate policy, exchange rate adjustments, remittance

Ratchet Effects in Currency Substitution: An Application to the Kyrgyz Republic

Currency substitution has been a common issue in the design of monetary policy in most transition economies. This paper analyzes the persistence of this phenomenon in the Kyrgyz Republic up to start of the Russia crisis by including a ratchet variable in the model specification. It concludes that, while some degree of persistence was present in the allocation of bank deposits at that time, currency substitution in the economy at large had not yet reached a point where reversing it would have been costly. Copyright 2000, International Monetary Fund

Production: IMF Multimedia Services Division

Includes bibliographical references

The Design of Fiscal Adjustment Strategies in Botswana, Lesotho, Namibia, and Swaziland

Botswana, Lesotho, Namibia, and Swaziland face the serious challenge of adjusting not only to lower Southern Africa Customs Union (SACU) transfers because of the global economic crisis, but also to a potential further decline over the medium term. This paper assesses options for the design of the needed fiscal consolidation. The choice among these options should be driven by (i) the impact on growth and (ii) the specificities of each country. Overall, a focus on government consumption cuts appears to minimize the negative impact on growth, and would be appropriate given the relatively large size of the public sector in each country.Customs duties;Economic models;Fiscal consolidation;Government expenditures;Revenues;Southern Africa;consumption tax, government spending, fiscal consolidations, consumption tax rate, fiscal adjustment, tax rates, fiscal adjustments, fiscal multipliers, government purchases, budget constraint, fiscal policy, investment spending, fiscal variables, fiscal rules, government budget constraint, private consumption, government budget, labor income, tax administration, consumption goods, spending cuts, consumption taxes, disposable income, tax increase, government revenue, capital account, public expenditures, public finances, tax increases, aggregate demand, fiscal sustainability, public spending, fiscal instrument, national budget, consumption price index, consumption declines, consumption over time, taxes on labor, substitution effect, fiscal risk, fiscal balances, fiscal stance, budgetary consolidation, fiscal strategies, tax compliance, fiscal reporting, fiscal responsibility, fiscal risks, tax collection, consumption tax rates, consumption price, tax changes, general equilibrium, fiscal multiplier, fiscal transparency, fiscal policy instrument, public debt, consumption basket, revenue collection, fiscal objectives, national fiscal rules, budget constraints, high spending, fiscal responsibility laws, budget imbalances, tax policy, fiscal balance, fiscal stabilizations, medium-term expenditure frameworks, marginal utility of consumption, tax evasion, public finance, fiscal shocks, fiscal response, fiscal pressure