Abstract
ABSTRACTThe paper estimates the equilibrium real exchange rate for Botswana. It also reviews the country’s exchange rate regimes. Botswana operated a fixed exchange – without adjustable pegs from 1966 to 1976; with adjustable pegs from 1976 to 1980; and with a currency basket from 1980 to date. Using the autoregressive distributed lag bounds testing procedure, the paper found terms of trade and trade openness to determine the equilibrium real exchange rate. The actual real exchange rate has deviated significantly from the equilibrium exchange rate. The estimated speed of adjustment is very slow, which calls for policies that could raise it in order to avoid excess misalignments.
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