ABSTRACT
This study aims to examine for the MENA region the impact of the behaviour of exchange rates and the nature of the de facto exchange rate arrangement on price stability. Several MENA countries have explicitly or de facto adopted conventional fi xed peg arrangements for many reasons related to the external sector and macroeconomic discipline including price stability. To this end, the paper studies the impact of changes in exchange rates and exchange rate policies on infl ation in eighteen MENA countries from 1975 to 2005 using empirical testing methods. The issue we investigate is the extent to which pegged exchange rate arrangements succeeded in achieving price stability, which is different from the many studies investigating the links between import prices and domestic prices. We build on the international literature which addresses the evaluation of pegged exchange rate regimes across the world and the studies analysing exchange rate policies in MENA countries. We hope to contribute to the literature on whether the majority of MENA countries that have adopted pegged exchange rate arrangements were able to achieve stable and low infl ation rates as a result of such policies. Determining the cost of these policies as well as the choice of exchange rate regimes are beyond the scope of the current analysis.
