Real exchange rate misalignment and economic performance in Sudan

Abstract

This article investigates the behavior of equilibrium exchange rate and real exchange rate misalignment in Sudan over the period 1979– 2009. In addition, the impact of real exchange rate misalignment on economic performance is examined. The empirical results show that the equilibrium exchange rate is significantly influenced by economic policy variables such as trade openness, government expenditure and taxes. The results also reveal that the Sudanese economy has exhibited an exchange rate overvaluation over the period under consideration. Consistent with our expectations for the period that related to oil exploitation, the real exchange rate has shown a low volatility owing to huge inflows of foreign exchange. Moreover, the results demonstrate that exchange rate misalignment has a deleterious impact on Sudanese export performance.

Keywords: Cointegration, economic performance, error correction model, exchange rate
misalignment, Sudan