Abstract

This paper aims to estimate volatility of exchange rate that was caused by inconsistent economic policies adopted by consecutive governments who failed to realize realistic exchange rate of the Sudanese pound. The consequences were mutual influence of high inflation rate, deterioration of the productive sectors, continuous internal and external deficits and depreciation of the exchange rate. To estimate the volatility of the exchange rate EGARCH (1,1) was used. The leverage effect term is negative and statistically different from zero, indicating the existence of the leverage effect (negative correlation between past returns and future volatility. As the past few years prove highly leveraged financial systems can have crises that increase the volatility of asset prices. These results indicate the possibility of a simultaneous feedback between the exchange rate and uncertainty and the response of the exchange rate to news about general price level (CPI)l, money stock, and current account which are the main determinants..

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