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Monetary policy and exchange market pressure-evidence from sub-Saharan Africa

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  • Vera Ogeh Fiador
  • Nicholas Biekpe

Abstract

The purpose of this study was to assess the impact of monetary policy on foreign exchange market pressure (EMP) in developing country contexts for some selected countries in sub-Saharan Africa (SSA) and to measure the ability of monetary policy to significantly address currency pressures that arise from trading on the global market. This study was motivated by the fact that most of the SSA countries are developing economies that have negative net export positions and stand to lose significantly from consistently deteriorating foreign exchange position. The study, therefore, employs a dynamic panel model to test the hypothesis that a tighter monetary policy stance lends strength to a currency and vice versa, using 20 SSA economies for the period from 1991 to 2010. This study finds a negative and significant relationship between monetary policy and EMP, implying an easing of EMP in the face of contractionary monetary policy. The findings also point to significant relations between aggregate output, levels of public debt, the current account balance, terms of trade and EMP. Findings of this study have important implications as regards the policy direction on exchange rate and currency management.

Suggested Citation

  • Vera Ogeh Fiador & Nicholas Biekpe, 2015. "Monetary policy and exchange market pressure-evidence from sub-Saharan Africa," Applied Economics, Taylor & Francis Journals, vol. 47(37), pages 3921-3937, August.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:37:p:3921-3937
    DOI: 10.1080/00036846.2015.1023937
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    References listed on IDEAS

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    1. Eichengreen, Barry & Arteta, Carlos, 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research, Working Paper Series qt3pk9t1h2, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    2. McPherson, M.F. & Rakovski, T., 2000. "Exchange Rates and Economic Growth in Kenya: An Econometric Analysis," Equity and Growth through Economic Research 56, EAGER Publication/BHM.
    3. Imran Naveed Khan, 2010. "Exchange Market Pressure Index in Pakistan," SBP Working Paper Series 35, State Bank of Pakistan, Research Department.
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    Cited by:

    1. Aleksandr V. Gevorkyan, 2019. "Exchange market pressure and primary commodity – exporting emerging markets," Applied Economics, Taylor & Francis Journals, vol. 51(22), pages 2390-2412, May.
    2. Senanu Kwasi Klutse & Judit Sági & Gábor Dávid Kiss, 2022. "Exchange Rate Crisis among Inflation Targeting Countries in Sub-Saharan Africa," Risks, MDPI, vol. 10(5), pages 1-13, May.

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