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I would like to thank Philippe Beaugrand, David Coe, Pierre Dhonte, Neil Ericsson, Stefania Fabrizio, Sérgio Leite, Humberto Lopez, Gary Moser, Eva Ortega, Parmeshwar Ramlogan, Atanasios Vamvakidis, and Tom Walter for valuable comments. I am the only one responsible for any remaining errors.
The evolution of both indices showed initially some divergences, but converged significantly during 1996. Hence, the policy implications of this paper can be extrapolated to explain the behavior of the new index.
See “Preços ao Consumidor e Nível de Consumo,” Comissão Nacional do Piano, Direcção Nacional de Estatística, DNE/DD/SER, B/11, November 1985.
This index was compiled by Marco Piñon-Farah, the Fund’s resident representative in Maputo. A description of the methodology used is presented in Appendix II.
Mozambique is located in the southern hemisphere. Therefore, its seasons are the reverse of those in the northern hemisphere.
In order to check the robustness of our results, we have detrended the series with the Hodrick and Prescott filter. The trend component that we obtain is basically the same as in Model 2.
We are aware that the use of ADF and Phillips-Perron unit root tests on non-seasonally adjusted data may give inconsistent results. We checked the validity of our assumptions with the test proposed by Canova and Hansen (1992) for non-seasonally adjusted data, and the results were confirmed.
Clearly, the ceteris paribus assumption is not consistent with the fact that money Granger-causes the exchange rate (see Table 5 below), but it is made for illustration only.
Since 1995 the conduct of monetary policy has improved considerably in Mozambique. The use of indirect instruments has increased, the real rediscount rate has been kept positive and the sale of the Banco Comercial de Moçambique allowed the Bank of Mozambique to exert a more strict control over the money supply, see Leite et al. (1996) for an extensive analysis.
Given the nature of the series, we do not consider a fourth component, the cyclical component, which we will include in a more general trend component.
Prepared by Marco Piñon-Farah.