The traditional theories concentrate on the effect of the exchange rate on the balance of payments, ignore the capital account and net income from abroad and therefore consider the current account as the balance of payments. [...] The propositions of this approach are: (i) the effect of the exchange rate on the balance of payments is temporary, in the long run an exchange rate variation does not affect the balance of payments as the monetary implication of the balance of payments nullifies any improvement from exchange rate depreciation. [...] This choice is out of the fact that it is the only theory of the balance of payments that recognizes the role of the money market in balance of payments adjustment. [...] The sign of the coefficient of the nominal exchange here is consistent with the elasticity view of the balance of payments though the elasticity view focuses on the goods market and considers the trade balance as the balance of payments. [...] ESTIMATION RESULTS 4.1 Order of Integration and Co-integration Tests In order to determine the time series properties of the variables of the model (so that we could determine whether the estimation of the reserve-flow model should be done in the levels of the variables) each of the variables was tested for stationarity.
- Pages
- 51
- Published in
- Sierra Leone
