Abstract

The exchange rate of Maldivian Rufiyaa to US dollar is permitted to fluctuate within a band between MVR10.28 and MVR 15.42 since 2011 after having a fixed exchange rate of 12.85 for a decade. During the year 2007, IMF reported that the exchange rate of the country was misaligned although in the 2008 report, the assessment was considered erroneous. Determination of exchange rate and understanding the exchange rate behavior are therefore essential to a systematic international financial market and to facilitate financial and economic corporations. Yet, no empirical literatures exist regarding the impact of macroeconomic fundamentals on exchange rate in the context of Maldives. Therefore, this study investigates the philosophy of the Dornbusch’s Sticky price model of exchange rate determination for Maldivian economy by using quarterly data obtained for a period of 14 years from 2000 to 2013. The result revealed that the sticky price monetary model is not validated for the case of Maldives.

This work is licensed under a Creative Commons Attribution 4.0 License.