Exchange-Rate Regimes And Monetary Autonomy: The Transmission Of Interest Rates In The Sadc

T. Qabhobho, C.V.R. Wait and P. le Roux

Studies in Economics and Econometrics, 2019, vol. 43, issue 1, 1-16

Abstract: This paper investigates the implications of exchange rate regimes for monetary independence in SADC countries, by examining the impact of a prominent international interest rate (a U.S. interest rate) on the domestic interest rate. The study relies on a General Methods of Moments (GMM) model. The estimated results concur with traditional theories of the so-called impossible trinity. In fixed exchange-rate regimes (soft pegs and hard pegs) the relevant domestic interest rate responds to the international interest rate, in contrast to floating exchange-rate regimes (free-floating and managed floats). SADC countries may eventually engage in full global financial integration. Our results suggest that this will require countries either to opt for exchange-rate stability and financial integration, while sacrificing monetary autonomy or, alternatively, for monetary independence with financial integration, while sacrificing exchange-rate stability.

Date: 2019
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DOI: 10.1080/10800379.2019.12097341

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