NDLI: Comparing Exchange Market Pressure across Five African Countries

Please wait, while we are loading the content...

Comparing Exchange Market Pressure across Five African Countries

Content Provider	Springer Nature Link
Author	Braga de Macedo, Jorge Pereira, Luis Brites Reis, Afonso M.
Copyright Year	2008
Abstract	This paper compares the credibility of exchange rate arrangements for the five African countries which are members of the Community of Portuguese Speaking Countries and will be referred to as Afro-Luso. Our working hypothesis is that credibility necessarily implies low mean exchange market pressure (EMP), low EMP conditional volatility and low-severity EMP crises under financial-market integration. In addition, economic fundamentals must account for EMP dynamics. We also seek evidence of a risk–return relationship for mean EMP and of “bad news” (negative shocks) having a greater impact on EMP volatility than “good news” (positive shocks). Using our econometric models, we are able to rank Afro-Luso countries’ conditional volatility in ordinal terms. Our main conclusion is that countries with currency pegs, such as Guinea-Bissau (GB) and Cape Verde (CV), clearly have lower volatility when compared to those with managed floats and are therefore more credible. Moreover, EMP crises episodes under pegs are much less severe. We find that economic fundamentals correctly account for mean EMP in all countries and that the risk–return relationship is much more favourable for investors under currency pegs, as the increase in volatility is lower for the same rate of return. The exception to this finding is Mozambique (MOZ), which apparently has a risk–return profile akin to that enjoyed by countries with pegs. A plausible reason is that MOZ has the only managed float in our sample implementing monetary and exchange rate policy within the confines of an IMF framework, which establishes floors for international reserves and ceilings for the central bank’s net domestic assets. This intuition needs to be tested, however. EMP conditional volatility, meanwhile, is generally driven by changes in domestic credit (lowers it) and foreign reserve changes (raises it). The first effect is more pronounced under currency pegs, but also under MOZ’s managed float. “Bad news” increases volatility more that “good news” only in the case of CV’s currency peg, which we take to be another sign of its credibility. A few striking cross-country comparisons also emerge in our analysis. Among countries with managed floats, Angola (ANG) has the most severe EMP crises, MOZ the least severe and São Tomé & Príncipe (STP) lies between the two extremes but closer to MOZ.
Starting Page	645
Ending Page	682
Page Count	38
File Format	PDF
ISSN	09237992
Journal	Open Economies Review
Volume Number	20
Issue Number	5
e-ISSN	1573708X
Language	English
Publisher	Springer US
Publisher Date	2008-06-03
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Exchange rate regime Exchange market pressure EGARCH-M Development Economics International Economics
Content Type	Text
Resource Type	Article
Subject	Economics and Econometrics

Sl.	Authority	Responsibilities	Communication Details
1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
5	Website/Portal (Helpdesk)	Queries regarding NDLI and its services	support@ndl.gov.in
6	Contents and Copyright Issues	Queries related to content curation and copyright issues	content@ndl.gov.in
7	National Digital Library of India Club (NDLI Club)	Queries related to NDLI Club formation, support, user awareness program, seminar/symposium, collaboration, social media, promotion, and outreach	clubsupport@ndl.gov.in
8	Digital Preservation Centre (DPC)	Assistance with digitizing and archiving copyright-free printed books	dpc@ndl.gov.in
9	IDR Setup or Support	Queries related to establishment and support of Institutional Digital Repository (IDR) and IDR workshops	idr@ndl.gov.in

IMF Support and Inter-Regime Exchange Rate Volatility

Trade Protection in Five EU Member Candidate Countries by Exchange Rate Adjustment, Customs Tariffs, and Nontariff Measures

Exchange Rate Regime and Demand for Reserves: Evidence from Kenya, Mexico and Philippines

Price Rigidity and the Selection of the Exchange Rate Regime

Central Bank Intervention and Heterogeneous Exchange Rate Expectations: Evidence from the Daily DEM/US-Dollar Exchange Rate

De Facto Exchange Rate Regime Classifications: An Evaluation

Vertical Trade, Exchange Rate Pass-Through, and the Exchange Rate Regime

Global Trends in the Choice of Exchange Rate Regime

Measuring Currency Pressure and Contagion Risks in Countries under Monetary Unions: The Case of Euro

Comparing Exchange Market Pressure across Five African Countries

Similar Documents

IMF Support and Inter-Regime Exchange Rate Volatility

Trade Protection in Five EU Member Candidate Countries by Exchange Rate Adjustment, Customs Tariffs, and Nontariff Measures

Exchange Rate Regime and Demand for Reserves: Evidence from Kenya, Mexico and Philippines

Price Rigidity and the Selection of the Exchange Rate Regime

Central Bank Intervention and Heterogeneous Exchange Rate Expectations: Evidence from the Daily DEM/US-Dollar Exchange Rate

De Facto Exchange Rate Regime Classifications: An Evaluation

Vertical Trade, Exchange Rate Pass-Through, and the Exchange Rate Regime

Global Trends in the Choice of Exchange Rate Regime

Measuring Currency Pressure and Contagion Risks in Countries under Monetary Unions: The Case of Euro

Comparing Exchange Market Pressure across Five African Countries