All books bought on the website can only be read on the app. Download Jackobian to have access to your materials
This study offers unique insights into the threshold-based influence of currency devalu-
ation (CD) on external debt sustainability (EDS) in designated Sub-Saharan African (SSA)
countries. The absence of evidence from this viewpoint, particularly in SSA, inspires
this new assessment. On this premise, the study utilizes two innovative estimation pro-
cedures: smooth transition regression (STR) and multiple thresholds nonlinear ARDL
(MTNARDL) to estimate the sign-based and magnitude-based asymmetric influence of
CD on EDS. The outcomes indicate that first, an average CD threshold of 21.1% is con-
sistent with EDS in the designated nations; second, a small CD significantly reduces
the external debt–GDP ratio and improves sustainability, while a very high CD largely
worsens the EDS problem; third, in the CD regime, devaluation has more detrimen-
tal effects on external debt burden; fourth, exceedingly large changes in exchange
rate (whether positive or negative) essentially affect the countries’ EDS negatively;
and fifth, the adverse effect of large depreciation on EDS is greater than that of large
appreciation. The study recommends, amongst others, that heavily indebted countries
with sizeable external debt denominated in foreign currency should, as a matter of
urgency, avoid excessive and escalated large percentages of devaluation or exchange
rate depreciation.
