CURRENCY DEVALUATION AND INFLATION DYNAMIC IN SUDAN (Jan.1993 - Sep.2014)
Elwaleed Ahmed TALHA
The paper examines the response on inflation to changes in nominal exchange rate in Sudan over two different exchange regimes (fixed and managed floating regime) by focusing on the currency devaluation in 2012 and 2013. It uses the interaction term as a technique to analyze the structural breaks dates on the given time series (inflation and nominal exchange rate), this includes the interaction between exchange rate and a binary variable represents a structural breaks. The paper figures-out that the devaluation is infeasible for Sudan where there is a shortage of foreign currencies. This result is in line with other empirical evidences (Asian crisis, 1997), which point out that devaluation under such circumstances is infeasible.
KEYWORDS: Devaluation; exchange rate; inflation, Structural Break, Sudan