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Exploring exchange rate based policy coordination in SADC

Author

Listed:
  • Mulatu Fekadu Zerihun
  • Martinus C. Breitenbach
  • Francis Kemegue

Abstract

Purpose - This paper explores the possibilities for policy coordination in the Southern African Development Community (SADC) as well as real effective exchange rate (REER) stability as a prerequisite towards sensible monetary integration. The underlying hypothesis goes with the assertion that countries meeting optimum currency area conditions face more stable exchange rates. Design/methodology/approach - The quantitative analysis encompasses 12 SADC member states over the period 1995-2012. Correlation matrixes, dynamic pooled mean group (PMG) and mean group (MG) estimators and real effective exchange rate (REER) and real exchange rate (RER) equilibrium and misalignment analysis are carried out to arrive at the conclusions. Findings - The study finds that the structural variables used in the PMG model show that there are common fiscal and monetary policy variables that determine REER/RER in the region. However, the exchange rate equilibrium misalignment analysis reveals that SADC economies are characterised by persistent overvaluation at least in the short term. This calls for further sustained policy coordination in the region. Practical implications - The findings in this paper have important policy implications for economic stability and for the attempt of policy coordination in SADC region for the proposed monetary integration to proceed. Originality/value - This study is the first attempt that relates the exchange rate as a policy coordination instrument among SADC economies.

Suggested Citation

  • Mulatu Fekadu Zerihun & Martinus C. Breitenbach & Francis Kemegue, 2016. "Exploring exchange rate based policy coordination in SADC," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 33(4), pages 576-594, October.
    • Handle: RePEc:eme:sefpps:v:33:y:2016:i:4:p:576-594
    DOI: 10.1108/SEF-03-2015-0089
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    Citations

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    Cited by:

    1. Mulatu Fekadu Zerihun & Marthinus C. Breitenbach, 2017. "Panel Data Analysis of the Proposed Monetary Union in the Southern African Development Community," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 67(4), pages 23-44, October-D.
    2. Anokye M. Adam & Kwabena Kyei & Simiso Moyo & Ryan Gill & Emmanuel N. Gyamfi, 2022. "Multifrequency network for SADC exchange rate markets using EEMD-based DCCA," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(1), pages 145-166, January.
    3. Mulatu F. Zerihun & Marthinus C. Breitenbach, 2018. "Is SADC an optimal currency area? Evidence from the generalized purchasing power parity test," Economic Change and Restructuring, Springer, vol. 51(2), pages 173-188, May.

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