Papers by Leslie Mkandawire
The Malawi Kwacha was floated in February 1994. Since then, the Reserve Bank of Malawi has period... more The Malawi Kwacha was floated in February 1994. Since then, the Reserve Bank of Malawi has periodically intervened in the foreign exchange market. This paper analyses the effectiveness of foreign exchange market interventions carried out by the Reserve Bank of Malawi. We use a GARCH (1, 1) model to simultaneously estimate the effect of intervention on the mean and volatility of the Malawi kwacha. Using monthly exchange rates and official intervention data from January 2002 to February 2006, the empirical results suggest that intervention activities of the Reserve Bank of Malawi affect the kwacha. In line with similar findings elsewhere in the literature, the paper finds that net sales of dollars by the Reserve Bank of Malawi depreciate, rather than appreciate, the kwacha. This effect is very small, however. Moreover, the paper also finds that the Reserve Bank of Malawi intervention reduces the volatility of the kwacha. This shows that the Reserve Bank actually achieves its objective of smoothing out fluctuations of the kwacha. This can be evidenced by the stability of the kwacha during a greater part of 2004. Thus intervention is, to some extent, used as an effective tool for moderating fluctuations of the kwacha. However, its effectiveness is constrained by the amounts of foreign exchange reserves, which are usually low.
African Development Review, 2012
This paper analyses the effectiveness of foreign exchange market interventions by the Reserve Ban... more This paper analyses the effectiveness of foreign exchange market interventions by the Reserve Bank of Malawi (RBM). We use a GARCH (1, 1) model to simultaneously estimate the effect of intervention on the mean and volatility of the Malawi kwacha. Results from the GARCH model indicate that net sales of US dollars by the RBM depreciate, rather than appreciate, the kwacha. Empirically, this implies the RBM 'leans against the wind', that is, the RBM intervenes to reduce, but not reverse, exchange rate depreciation. On the other hand, results for the GARCH model for the post-2003 period indicate the RBM intervention in the market stabilizes the kwacha. In general, results for the entire study period show that the RBM interventions have been associated with increased exchange rate volatility, with the only exception being the post-2003 period. The implication of this finding is that intervention can only have a temporary influence on the exchange rate.
The Malawi kwacha was floated in February 1994. Since then, the Reserve Bank of Malawi (RBM) has ... more The Malawi kwacha was floated in February 1994. Since then, the Reserve Bank of Malawi (RBM) has periodically intervened in the foreign exchange market. This report analyses the effectiveness of foreign exchange market interventions by RBM. We used a generalized autoregressive conditional heteroskedastic (GARCH; 1, 1) model to simultaneously estimate the effect of intervention on the mean and volatility of the kwacha. We also ran an equilibrium exchange rate model and use the equilibrium exchange rate criterion to compare results with those from the GARCH model. Using monthly exchange rates and official intervention data from January 1995 to June 2008, results from the GARCH model indicated that net sales of United States dollars by RBM depreciate, rather than appreciate, the kwacha. Empirically, this implies the RBM “leans against the wind”, i.e., the RBM intervenes to reduce, but not reverse, around-trend exchange rate depreciation. However, results from the GARCH model for the po...
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Papers by Leslie Mkandawire