TITLE:
Fundamentals and Misalignment of the Real Effective Exchange Rate in the Democratic Republic of Congo
AUTHORS:
Gastonfils Lonzo Lubu, Eddy Mananasi Mabala, Jean Pierre Ntal Onim, Eleo Ambroise Jr.
KEYWORDS:
Misalignment, Real Effective Exchange Rate, Economic Growth, DR Congo, Pesaran and Johansen Cointegration, VCEM and ARDL Model
JOURNAL NAME:
Modern Economy,
Vol.14 No.4,
April
30,
2023
ABSTRACT: This study aims to assess the determinants of the real exchange rate and
to study the impact of exchange rate misalignment on economic growth in the DRC
over the period from 1980 to 2020. This article uses a dual methodology to
achieve its objective, first the BEER (Behavioral Equilibrium Exchange Rate)
approach of Clark and Mc Donald to determine the fundamentals of TCER, then the approach of Lawson to assess the impact of
misalignment of the exchange rate on economic growth based on the augmented
Solow endogenous growth model. In view of the results obtained using
econometric modeling (Cointegration, VCEM and ARDL), it has been observed that
there is a long relationship between the real effective exchange rate
(REER) and its fundamentals. In addition, the results of the REER fundamentals
(relative productivity, term of trade, public expenditure and foreign exchange
reserves) verify the Balassa-Samuelson effect in the DRC. In addition, the
misalignment of the exchange rate exerts a negative impact on real GDP growth
in the DRC. However, a disaggregation of the REER misalignment shows that
exchange rate depreciation strengthens economic activity while an appreciation
constrains economic growth in the DRC.