Research
Drivers of Real Exchange Rate in the Small Open Island of Mauritius
Article
May 11, 2021
This paper investigates the factors of real exchange rate (RER) in Mauritius by implementing a dynamic regression approach on quarterly data from 1999:Q1 to 2016: Q4. Productivity differential, interest rate differential, openness, gross domestic fixed capital formation and share price index are the main triggers of RER in the long-run. In the short-run, productivity differential and interest rate differential drive real exchange rate. Thus, RER will converge to its long-run equilibrium level if these factors are allowed to adjust freely.
