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

Luis Gil-Alana, Borja Balprad, Guglielmo Maria Caporale and Hector Carcel

No 11/2015, NCID Working Papers from Navarra Center for International Development, University of Navarra

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.

Keywords: Monetary unions; Africa; Exchange rates (search for similar items in EconPapers)
JEL-codes: C22 C32 E31 F15 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2015-09
New Economics Papers: this item is included in nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:nva:unnvaa:wp11-2015

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