Analysis of asymmetric response of exchange rate to interest rate differentials: The case of African Big 4

Abdullahi Musa, Afees Salisu, Victoria O. Aliyu and Chioma R. Mevweroso

The North American Journal of Economics and Finance, 2021, vol. 55, issue C

Abstract: Using the case of four leading African economies, namely Algeria, Egypt, Nigeria and South Africa, this paper explores the possibility of asymmetric relationship between exchange rate and interest rate differential. In addition, it also tests whether accounting for structural breaks matters for the nexus. The results vary for the four countries based on the choice of exchange rate regime and countries involved in full-fledged floating or managed floating seem to respond more to variations in interest rate differential. Also, accounting for both asymmetries and structural breaks should not be disregarded when modelling this nexus.

Keywords: Exchange rate; Interest rate differential; African Big 4; Asymmetries; Structural breaks (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940820302072

DOI: 10.1016/j.najef.2020.101320

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