The purpose of this study is to examine the effects of the real exchange rate (RER) movements on gross domestic product, manufacturing and services sectors growth in Mauritius. A Vector Autoregressive approach is used which accounts for both dynamics and endogeneity in the exchange-growth modeling. In the growth model, real currency depreciation is observed to be contractionary in the short-run while it is expansionary in the long-run. Conversely, real home currency depreciation has expansionary effect on manufacturing output growth in the short-run while it drops manufacturing output in the long-run. Finally, real domestic currency depreciation has positive long term effect on services sector performance in Mauritius.
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