Admassie, Assefa (Dr.)Demeke, Tamiru2021-04-052023-11-192021-04-052023-11-192005-06http://etd.aau.edu.et/handle/12345678/25926The paper adopts a single equation approach to examine the real exchange rate behavior and exchange rate misalignment after devaluation and foreign exchange I' ate liberalization. The paper finds that real exchange rate and the macroeconomic fundamentals affecting real exchange rate are co integrated. It also shows that devaluation, foreign exchange market liberalization and some of the policy measures taken by government such as reducing government consumption and deficit, new investment policy and other measures that increase the capital il'iflow narrow the gap between the parallel market foreign exchange rate and the official market foreign exchange rate, make the behavior of the real exchange rate fairly variable. In other words, the misalignment of the real exchange rate declines and the exchange rate movement becomes more stable. These are the desired goals that could be achieved by the devaluation of the exchange rate and through foreign exchange rate liberalization.enBilateral official real exchange rates, Bilateral parallel market real exchange rate, Real effective exchange rate, Equilibrium real exchange ratesThesis