Understanding the sources of exchanage rate fluctuations in Sudan

Abstract

This paper examines the sources of real exchange rate fluctuations in Sudan using Structure Vector Autoregressive technique, over the period 1979–2010. The analysis has focused on the impact of three macroeconomics shocks on fluctuations of real exchange rate, namely, supply, real demand and nominal shocks. The result shows that the real demand shocks play a significant role in explaining the variations in real exchange rate. This implies that the real demand factors such as, government spending and money supply are the major sources of depreciation of real exchange rate. By contrast, supply shocks and nominal shocks have small impact of real exchange rate.

Keywords: Exchange rate fluctuations, structural VAR, Sudan