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Exchange rate behavior in the cases of the Zambian Kwacha and Malawian Kwacha : is there misalignment?

- Magwizi, Brenda Thandekha, Rhodes University

Authors: Magwizi, Brenda Thandekha , Rhodes University
Date: 2011
Subjects: Foreign exchange rates -- Zambia Foreign exchange rates -- Malawi International relations -- Case studies -- Zambia International relations -- Case studies -- Malawi
Language: English
Type: Thesis , Masters , MCom
Identifier: vital:974 , http://hdl.handle.net/10962/d1002708
Description: The exchange rate is the price of one currency against another currency or currencies of a group of countries. Real exchange rates are important because they show the external competitiveness of a country‟s economy. Thus, when the exchange rate of a country is misaligned, this will affect its trade, production and the welfare of people. This study analysed macroeconomic determinants of the real exchange rate and dynamic adjustment of the real exchange rate as a result of shocks to these determinants. The study also determined the extent of misalignment of the real exchange rate in Malawi and Zambia and identified variables that contributed to it. Such information is important to policy makers. Quarterly data were used for both countries from 1980:1-2008:4. The literature review identified those variables that determine the exchange rate and these include government consumption, foreign aid, net foreign assets, commodity prices, terms of trade, domestic credit, openness and the Balassa Samuelson effect (technological progress). To determine the long-run relationship between the exchange rate and its determinants, we employed the Johansen approach and the Vector Error Correction Model (VECM). For robustness check on the long-run and shortrun effects of determinants on the exchange rate, variance decomposition and impulse response analyses were used. Results in the study show that in Malawi for both models, an increase in LAID, LGCON and LTOT resulted in real exchange rate depreciation and increases in LDC, NFA and LNEER resulted in an appreciation. In Zambia, increases in LAID, LGCON, LOPEN and LTOT caused the real exchange rate to depreciate while increases in LDC, NFA and LCOPPER led to an appreciation. Lagged LREER and LNEER were found to have short run effects on the equilibrium exchange rate for Malawi and lagged LCOPPER and LDC for Zambia. Periods of exchange rate misalignment were found in both countries. It was also found that the coefficient of speed of adjustment in Malawi in models 1 and 2 indicate that 11% and 27% of the variation in the real exchange rate from its equilibrium adjust each quarter respectively. The speed of adjustment for Zambia in both models was 45% and 47% respectively, higher than that of Malawi. Foreign aid has proven to be important in exchange rate misalignment in both countries, though this was not really expected in the case of Zambia. Given these results, it may be of interest to policy makers to understand which variables impact most on the exchange rate and how misalignment due to these determinants can be minimised.
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Date Issued: 2011

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Rhodes University Research Report 2011

- Rhodes University, Rhodes University Research Office, Roberts, Jaine, Connan, Verna, Dore, Sally

Authors: Rhodes University , Rhodes University Research Office , Roberts, Jaine , Connan, Verna , Dore, Sally
Date: 2011
Language: English
Type: Text
Identifier: vital:566 , http://hdl.handle.net/10962/d1011981
Description: [From Introduction] Rhodes University continued to show a gratifying and steady increase in overall accredited research outputs in 2011, and individual increases were experienced in all categories of output. Overall accredited units increased to 639.6 (a 12.7% increase on 2010), with a similar percentage increase in the DHET per capita output figure, which kept Rhodes in the position of third most productive university in South Africa in terms of accredited research. 51% of the outputs were due to publications, 25% to PhD graduations, and 24% to Masters graduations by thesis. The PhD contribution represented a record year, and a 30% increase over the number graduating in the preceding year. Our journal output, (which accounts for 86% of our total accredited publishing output for higher education subsidy purposes) grew by 5.9% from the 2010 level (to 309.61 units in 2011). The previous year had seen a 3% decline in this category. Coupled with Rhodes’ high volume of accredited journal outputs in relation to its size, a very pleasing quality measure was that 90% of journal outputs (by far the highest proportion of universities in the sector) appeared in international accredited journals. Our output from accredited conference proceedings, (which in 2011 amounted to 7% of our total accredited publishing output) grew by 3.5% to 24.22 units - from a small base where year-on-year variance in either direction is common. The book outputs (which in 2011 amounted to 7% of our total accredited publishing output) increased by 162% - again from a small base (moving up to 25.02 units), where year-on-year variance is expected. This category had seen a negative growth of 60.6% in the previous year. add my warm thanks and congratulations to all of our researchers, funders, collaborators, partners and students who contributed to the excellent accredited research results of 2011, as well as generated the many forms of scholarship that are not counted in the accreditation exercise, but which contribute much to the rich intellectual space that is Rhodes. I also thank all of the administrators who played a critical role in preparing the university’s meticulous audited submission. , A publication of the Rhodes Research Office, compiled and edited by Jaine Roberts and Verna Connan. Design and Layout: Sally Dore.
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Date Issued: 2011

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