Purpose
The purpose of this paper is to examine whether real exchange rate devaluation improves the current account balance of four highly indebted low-income countries of East Africa.
Design/methodology/approach
The pooled mean group (PMG) approach is used for panel data from four countries over the period 1970–2016. The paper also applied bound testing and ARDL model for time-series data from individual sample countries.
Findings
The panel PMG/ARDL estimation result reveals that real exchange rate devaluation has no significant impact on the current account balance, both in the short and long run. However, the time-series analysis using the bound testing and restricted ARDL estimation suggests that real exchange rate devaluation improves the current account balance in the long run for only Ethiopia. The overall empirical results reveal that the current account balance would improve with the rising domestic income while it deteriorates with increasing foreign income and external indebtedness in the long run.
Originality/value
The paper is original.
This study examines the effect of monetary policy instruments on bank risk‐taking behaviour of private commercial banks in Ethiopia. Using Panel Dynamic OLS estimator, the empirical results suggested that private banks would take more risks in response to lower regulatory capital ratio, lower reserve requirements, the expansion of domestic credit, and large real asset size in the long run. In addition, the dynamic causal interactions showed that bank risk‐taking Granger causes only bank size in the system, but both capital adequacy and liquidity ratio Granger causes bank risk‐taking and bank size. With estimation results of generalized impulse function, bank risk have generally have a positive shock in response to regulatory capital ratio while a negative shock in response to liquidity for the first two periods. The variance decomposition results also suggested that all variables are relatively exogenous, and the forecast error for all variables is largely explained by their own innovations.
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