Are devaluations effective in inducing real depreciations in sub-Saharan Africa?

Abstract

The analysis of this paper, with pooled data for 20 countries in sub-Saharan Africa during 1971–1991, indicates that nominal devaluations are effective in inducing permanent depreciations in the real exchange rate (RER). A 10% nominal devaluation of the domestic currency (expressed in units per US dollar) translates into a real depreciation of 8.8 and 7.7% in the short and long run, respectively. It is also established that the RER appreciates with an increase in inflation tax. A policy implication of these results is that nominal devaluations are effective in keeping the RER close to a level that maintains external competitiveness, if accompanied by appropriate restrictive monetary and fiscal policies.