**ECONOMICS**

**Real exchange rate behaviour and economic growth: Evidence from Sierra Leone**

**Abu Bakarr Tarawalie**

Department of Economics, University of Sierra Leone

**ABSTRACT**

**Keywords:** Economic growth, real effective exchange rate, Johanssen Cointegration, Sierra Leone

**JEL:** E63, F31, 41, 43

**“Full text available only in PDF format”**

**References**

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Accepted January 2010

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**Endnotes**

1 The real exchange rate is the nominal exchange rate (index) adjusted for price changes in the domestic economy relative to those of trading partners (Fosu, 1992); that is, RER = EP*****/P, where RER is real exchange rate, E is nominal exchange rate, P* is foreign price level, and P is domestic price level.

2 See World Bank country briefing.

3 *Bank of Sierra Leone Bulletin.* 1997: 20.

4 The leone (Le) is the domestic currency denomination in Sierra Leone.

5 Devaluation involves a reduction in the value of the domestic currency vis-à-vis the currencies of its trading partners.

6 The model consists of exportable goods, importable goods and non-tradable goods (see Dorbusch, 1974).

7 Note that **Δ**ln *reert* = ln *reert* - ln *reert-*_{1}

8 A negative sign implies the impact of a given variable on the REER and leads to an appreciation of the real effective exchange rate, while a positive sign means that the effect of a variable causes a depreciation of the REER. ]]>
9 The reert is weighted by the trade shares of exporting partners, and this is computed as:

where *i* represents the four major export partners of Sierra Leone, α*i*. is the weight or share of the *i*th country in the total export of Sierra Leone, *CPIi** is the consumer price index of the *i*th country, *ei* is the bilateral nominal exchange rate defined as leones per currency of the *i*th country, *CPI* is the domestic consumer price index.

10 Terms of Trade = (Export price index/ import price index)*100.

11 OPEN = (X+IM)/GDP, where X is export and IM is import.

12 Beta coefficient (ß) of a variable is defined as follows: ß = (coefficient of the variable * standard error of the variable)/standard error of the regression. A higher beta coefficient means a stronger influence of that variable on the dependent variable. A lower beta coefficient means a weaker influence of the variable on the dependent variable.

13 Countries of the WAMZ include Gambia, Ghana, Guinea, Nigeria and Sierra Leone.

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