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Exchange Rate Dynamics and Monetary Unions in Africa: A Fractional Integration and Cointegration Analysis

Author

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  • Luis Alberiko Gil-Alaña

    (Navarra Center for International Development)

  • Borja Balprad
  • Guglielmo Maria Caporale
  • Hector Carcel

Abstract

This paper uses fractional integration and cointegration techniques to analyze nominal exchange rate dynamics in three groups of African countries aiming to form currency unions in the near future. The proposed unions are the WAMZ (West African Monetary Zone), the EAC (East African Community), and the SADC (South African Development Community). The univariate results indicate that in all but three countries (Democratic Republic of Congo, Mauritius and Madagascar) the nominal exchange rate series exhibit a unit root. Concerning the multivariate results, for the WAMZ cointegration is only found in the case of Ghana with both Gambia and Guinea; for the EAC for Rwanda with Burundi, and Tanzania with both Rwanda and Uganda. Finally, for the SADC, cointegration is found in only 15 out of 66 cases, including Swaziland with South Africa, Zambia with Malawi, and Mozambique with both Lesotho and Tanzania. The policy implications of these findings are also discussed.

Suggested Citation

  • Luis Alberiko Gil-Alaña & Borja Balprad & Guglielmo Maria Caporale & Hector Carcel, 2015. "Exchange Rate Dynamics and Monetary Unions in Africa: A Fractional Integration and Cointegration Analysis," NCID Working Papers 11/2015, Navarra Center for International Development, University of Navarra.
    • Handle: RePEc:nva:unnvaa:wp11-2015
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    More about this item

    Keywords

    Monetary unions; Africa; Exchange rates;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F15 - International Economics - - Trade - - - Economic Integration

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