Analysis of the Determinants of the Real Exchange Rate in Madagascar: Results from the ARDL Model

Economics

Developing countries generally experience significant fluctuations in their real exchange rates, which can have substantial effects on their competitiveness and macroeconomic stability. Understanding the key determinants of these rates is therefore a major concern for the design and implementation of effective economic policies. In this context, the present article aims to analyze the main variables influencing the real exchange rate in Madagascar over the period from 1986 to 2023. To achieve this, we used the ARDL (AutoRegressive Distributed Lag) model, which allows distinguishing between the short-term and long-term effects of various variables on the real exchange rate. The results show that, in the long run, two factors are particularly significant: the terms of trade and foreign direct investment. These variables play a crucial role in regulating the country’s price competitiveness by influencing the relative value of the currency and, consequently, Madagascar’s position in international markets. However, national output does not have a significant impact on the real exchange rate. Furthermore, the analysis highlights that economic policies aimed at stabilizing these determinants, such as promoting exports and attracting foreign investments, can help reduce real exchange rate volatility and strengthen economic resilience. This study thus provides valuable insights for policymakers and economic stakeholders seeking to better understand and anticipate movements in Madagascar’s real exchange rate, while emphasizing the importance of an integrated approach involving foreign trade, and investment

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