Setting the Stage for a National Currency in the West Bank and Gaza: The Choice of Exchange Rate Regime

35 Pages Posted: 3 Mar 2006

See all articles by Samya Beidas

Samya Beidas

affiliation not provided to SSRN

Magda Kandil

International Monetary Fund (IMF)

Date Written: April 2005

Abstract

This paper sheds light on the quantitative behavioral responses of key economic variables in the Palestinian economy in the face of major economic shocks and draws implications for the choice of an exchange rate regime should a decision be taken to introduce a national currency. Time-series regression analysis shows that (i) wages and prices are flexible in the face of various shocks; (ii) the real wage appears rigid in the face of various shocks and increases despite higher unemployment; (iii) an appreciation of the new Israeli Sheqalim real effective exchange rate decreases exports and imports; and (iv) money demand appears stable in the face of exchange rate shocks. Although a fixed exchange rate system may initially be desirable to establish credibility of the new currency, some flexibility of the exchange rate is desirable over time.

Keywords: Exchange Rate Regime, West Bank and Gaza, Palestinian Economy, Sticky Wages and Prices, Trade Price Sensitivity, Currency Substitution

JEL Classification: 011, J31, F41

Suggested Citation

Beidas, Samya and Kandil, Magda, Setting the Stage for a National Currency in the West Bank and Gaza: The Choice of Exchange Rate Regime (April 2005). IMF Working Paper No. 05/70, Available at SSRN: https://ssrn.com/abstract=888116

Samya Beidas (Contact Author)

affiliation not provided to SSRN

No Address Available

Magda Kandil

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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