Equilibrium Real Exchange Rate and Misalignment: The Sierra Leone Perspective

This paper estimates the equilibrium real effective exchange rate and determine level of misalignment in Sierra Leone, for period 1980 to 2018. The utilizes behavioral methodology within Johansen maximum likelihood framework estimate long run rate. unit root test result shows that all variables are integrated order one, whilst cointegration establishes existence one cointegrating vector as evidenced by both Trace Maximum Eigen Statistics. normalized results reveal openness, government expenditure money supply were most significant determinants run. Furthermore, findings experienced sustained deviation from during study period, with episodes overvaluation undervaluation. Specifically, was overvalued 3.69 percent between 1980-1985; undervalued 1.8 1986-1997, 0.9 1998-2004, Thus, reveals Based on these findings, recommends that, monetary authorities should ensure stability maintain price stability, through sterilization capital flows well contain growth statutory limit.