The pattern of exchange rate co-movement in selected African countries

2016 ◽  
Vol 43 (6) ◽  
pp. 928-953 ◽  
Author(s):  
Emmanuel Carsamer
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Foreign Exchange ◽  
Financial Market ◽  
Market Integration ◽  
Foreign Exchange Market ◽  
Dynamic Panel Data ◽  
Exchange Market ◽  
Content Type ◽  
Financial Market Integration

Purpose The concept of co-movement has witnessed a resurgence in the international finance literature in recent years after the black swan events. This might be due to a renewed focus on globalization and financial market integration in the world over. The purpose of this paper is to examine the dynamic linkages in the foreign exchange market resulting from recent globalization and financial market integration in Africa. Design/methodology/approach A conceptual framework was adapted from the extant literature and was used as the basis of modeling foreign exchange market in Africa. This paper adopts a quantitative research approach and opted for dynamic panel data analysis to empirically unearth the determinants of foreign exchange market co-movement. Findings It is interesting to note that exchange rate co-movements were externally determined. Robust support was found for trade intensity, competition and world interest rate on foreign exchange rates co-movement, but regional interest rate differential decreased it. These findings clearly demonstrate the level of financial development and challenges that sometimes exist in exchange rate policy implementation by policy makers in Africa. Research limitations/implications Future research might incorporate bilateral investment into the model of exchange rate correlation. Originality/value Studies focussing on simultaneous consideration of intensity, trade competition and capital account openness to exchange rate correlations in the contexts of Africa are almost non-existent, and this study makes an important contribution in not only addressing this imbalance but also more importantly improving the relatively parsimonious literature on foreign exchange co-movement.

scholarly journals 70 years of China's foreign exchange market development: history and experience

2020 ◽  
Vol 3 (1) ◽  
pp. 3-17
Author(s):  
Guogang Wang ◽  
Nan Lin
Keyword(s):  
Economic Development ◽  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Market ◽  
Rate System ◽  
Content Type ◽  
Economic Exchanges ◽  
History Of ◽  
Reform And Opening Up

PurposeThe development of China's foreign exchange market and the reform of Chinese yuan (hereinafter “CNY”) exchange rate are closely linked with each other. Their respective journey through the past 70 years can both be divided into three historical periods; as follows: China's foreign exchange market underwent a difficult exploration period, a formation and development period and an innovative development period; in the meanwhile, the formation mechanism of CNY exchange rate also witnessed three periods marked successively by a single exchange rate system with administrative pricing, an explorative formation mechanism of CNY exchange rate and a reformed, marketized CNY exchange rate mechanism.Design/methodology/approachIn the present world, the development of almost every country is closely linked to the international community, which is the result of the heterogeneity in system, market, humanity and history, in addition to the differences in natural resource endowments and the diversity in technology, administration, information, experience and diplomacy. International economic exchanges require foreign exchange, which gives rise to the existence and development of the foreign exchange market.FindingsThe 70-year history of China's foreign exchange market has proven the need to continue safeguarding national sovereignty and interests of the people, stick to the general direction of serving economic development, adhere to the strategy of steadily and orderly promoting the construction of the foreign exchange market, keep on making innovation in monetary policy operation and unbendingly stay away from any systemic financial risks.Originality/valueDuring the 70-year history of the new China, as an indispensable economic resource in China's economic development, the foreign exchange mechanism bolstered each stage of economic development and was always an important manifestation of China's economic sovereignty. It is argued that during the 30-year planned economy that preceded reform and opening-up, China pursued a closed-door policy with few international economic exchanges. The subtext of such argument is that China did not have (or hardly had much of) a foreign exchange mechanism during this period, which is clearly in conflict with historical evidence. In fact, although China did not have an open foreign exchange market before the reform and opening-up, it had a clear foreign exchange management system and exchange rate system.

Asymmetric effect of exchange rate volatility on trade in sub-Saharan African countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
James Temitope Dada
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Exchange Rate Volatility ◽  
Asymmetric Structure ◽  
Asymmetric Effect ◽  
Exchange Market ◽  
African Countries ◽  
Content Type ◽  
Sub Saharan

PurposeThe purpose of this study is to examine the effect of asymmetric structure inherent in exchange rate volatility on trade in sub-Saharan African countries from 2005 to 2017.Design/methodology/approach17 countries in sub-Saharan African Countries are used for the study. Exchange rate volatility is generated using generalised autoregressive conditional heteroscedacity (1,1), while the asymmetric components of exchange rate volatility are generated using a refined approach of cumulative partial sum developed by Granger and Yoon (2002). Two-step generalised method of moments is used as the estimation technique in order to address the problem of endogeneity, commonly found in panel data.FindingsThe result from the study shows the evidence of exchange rate volatility clustering which is strictly persistent in sub-Saharan African countries. The asymmetric components (positive and negative shocks) of exchange rate volatility have negative and significant effect on trade in the region. Meanwhile, the effect of negative exchange rate volatility is higher on trade when compared with the positive exchange rate volatility. Furthermore, real exchange rate has negative and significant effect on trade in sub-Saharan African countries.Research limitations/implicationsThe outcomes of this study are important for participants in foreign exchange market. As investors in foreign exchange market react more to the negative news than positive news, investors need to diversify their risk. Also, regulators in the market need to formulate appropriate macroeconomic policies that will stabilize exchange rate in the region.Originality/valueThis study deviates from extant studies in the literature by incorporating asymmetric structure into the exchange rate trade nexus using a refined approach.

Volatility transmission in African foreign exchange markets

2016 ◽  
Vol 7 (2) ◽  
pp. 205-224 ◽  
Author(s):  
Emmanuel Carsamer
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Financial Market ◽  
Foreign Exchange Market ◽  
Exchange Rate Volatility ◽  
Exchange Rate Policy ◽  
Future Research ◽  
Research Approach ◽  
Content Type ◽  
Volatility Transmission

Purpose – The concept of volatility transmission and co-movement has witnessed a resurgence in the international finance literature in recent years after the black swan events which gave evidence of financial market linkages. The purpose of this paper is to examine the dynamic sources of volatility transmission in the foreign exchange market in recent financial market integration in Africa. Design/methodology/approach – A conceptual framework was adapted from the extant literature and was used as the basis of modeling exchange rate volatility transmission. This paper adopts a quantitative research approach and opts for augmented DCC model to empirically unearth the sources of exchange rate volatility transmission. Findings – The key findings of the study are that, the African market is more prone to shock from outside than in the region. Macroeconomic news surprises influence volatility transmission and co-movements. Robust support is found for trade balance, interest rate and gross domestic product. These findings clearly demonstrate the low level of financial development and challenges that sometimes exist in exchange rate-policy implementation by policy makers. Research limitations/implications – Interested academics and practitioners working in the area might incorporate bilateral investment into the model of exchange rate correlation in future research. Originality/value – Unilaterally considering exchange rate volatility transmission and subsequent augmentation of the DCC model, this study makes a modest contribution to the examination of exchange rate correlations in Africa. This study makes an important contribution in not only addressing this imbalance, but more importantly improving the relative literature on exchange rate volatility transmission.

scholarly journals Central bank's communication and markets' reactions: Polish evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Janusz Brzeszczyński ◽  
Jerzy Gajdka ◽  
Tomasz Schabek ◽  
Ali M Kutan
Keyword(s):  
Monetary Policy ◽  
Foreign Exchange ◽  
Financial Market ◽  
Foreign Exchange Market ◽  
Emerging Market ◽  
Public Information ◽  
Exchange Market ◽  
Market Segments ◽  
Content Type ◽  
The Impact

PurposeThis study contributes to the pool of knowledge about the impact of monetary policy communication of central banks on financial instruments' prices and assets' value in emerging markets.Design/methodology/approachEmpirical analysis is executed using the National Bank of Poland (NBP) announcements about its monetary policy covering the data from the broad financial market in its three main segments: stock market, foreign exchange market and bonds market. The reactions are measured relative to the changes in the NBP announcements and also with respect to investors' expectations. Autoregressive conditional heteroscedasticity (ARCH) models with dummy variables are used as the main methodological tool.FindingsBonds market and foreign exchange market are the most sensitive market segments, while interest rate and money supply are the most influential types of announcements. The changes of the revealed new macroeconomic figures had more impact on assets' prices movements than the deviations from their expectations. Moreover, greater diversity of the Monetary Policy Council (MPC) members' opinions on the voted motions, captured in the MPC voting reports, is associated with more cases of statistically significant NBP communication events.Practical implicationsThe findings have direct relevance for fund managers, portfolio analysts, investors and also for financial market regulators.Originality/valueThe results provide novel evidence about how the emerging financial market responds to monetary policy announcements. They help understand the nature of the impact of public information on financial assets' valuation and on movements of their prices, analysed comprehensively in three market segments, in the emerging market environment.

Understanding Indonesia’s exchange rate behavior

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
R. Eki Rahman
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Order Flow ◽  
Flow Data ◽  
Exchange Market ◽  
Data Set ◽  
Foreign Investors ◽  
Content Type ◽  
Rate Behavior

Purpose The main aim of this paper is to examine the mechanism of determining the exchange rate of the US dollar against the Indonesian rupiah (USD/IDR) by market players to manage the USD/IDR exchange rate stability. Thus, this study is expected to provide a better understanding of the determinants of the USD/IDR, given that the data set completely encompasses all the USD/IDR transactions in the Indonesian foreign exchange market. Order flow data used in this study cover all transactions on the USD/IDR conducted by domestic residents including both individuals and corporations and foreign investors in the Indonesian foreign exchange market. Design/methodology/approach This study covers the data set over the period January 3, 2011 to December 31, 2015, and the vector autoregression and autoregressive distributed lag models are used in examining the research questions. More particularly, in this study, the author examines whether the net total domestic individual transactions (DOVA), net total domestic corporation transactions (KOVA), net total foreign investor transactions (IOVA), Asian Dollar Index (ADXY), non-deliverable forward (NDF) for USD/IDR and Volatility Index (VIX) are statistically significant determinants of the USD/IDR exchange rate. Findings Overall, this study suggests that in the short run, lag of the USD/IDR exchange rate or inertia level, lag of the IOVA, lag of the NDF of the USD/IDR exchange rate and lag of the ADXY are statistically significant determinants of the USD/IDR. On the other hand, in the long run, DOVA, NDF and ADXY are found to be statistically significant determinants of USD/IDR. This study also found that there is a market leader and asymmetric information among market players in the Indonesian foreign exchange market, and their USD/IDR exchange rate level becomes a reference for other market players when conducting transactions with each other. Originality/value The paper is original along two lines. First, the data set used in this study is unique. It encompasses all the USD/IDR transactions in the Indonesian foreign exchange market. The order flow data used in this study cover all transactions on the USD/IDR conducted by domestic residents (includes both individuals and corporations) and foreign investors in the Indonesian foreign exchange market. Such an approach has not been used previously to study the exchange rate behavior in an emerging market. Second, there is limited knowledge on Indonesia’s exchange rate dynamics. This study fills this gap.

The Floating Dollar in the Greenback Period: A Test of Theories of Exchange-Rate Determination

1981 ◽  
Vol 41 (3) ◽  
pp. 629-650 ◽  
Author(s):  
Lawrence H. Officer
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Foreign Exchange ◽  
Purchasing Power Parity ◽  
Foreign Exchange Market ◽  
Purchasing Power ◽  
Exchange Market ◽  
Power Parity ◽  
Exchange Rate Determination ◽  
Income Effects

Some leading modern theories of exchange-rate determination are pitted against each other in explaining fundamental movements of the freely floating U.S. dollar in the foreign-exchange market during the greenback period, 1862–1878. A purchasing-power-parity theory augmented to incorporate interest-rate, and possibly income, effects provides the best explanation of the exchange rate. The standard works on the greenback period are subject to some amendments in light of the study.

scholarly journals Money and Foreign Exchange Markets Dynamics in Nigeria: A Multivariate GARCH Approach

2021 ◽  
Vol 12 (No. 1) ◽  
pp. 109-138
Author(s):  
Ngozi V. Atoi ◽  
Chinedu G. Nwambeke
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Garch Model ◽  
Money Market ◽  
Multivariate Garch ◽  
Volatility Spillover ◽  
Exchange Market ◽  
Dynamic Correlation

This study examines money market and foreign exchange market dynamics in Nigeria by estimating the dynamic correlation and volatility spillovers between Nigeria Naira/US Dollar Bureau De Change (BDC) exchange rate and interbank call rate with data from January 2007 to August 2019. The study employs a dynamic conditional correlation form of GARCH model (DCC-GARCH) to access the nature of correlation, while an unrestricted bivariate BEKK-GARCH (1, 1) form of multivariate GARCH model is utilized to investigate shocks and volatility spillover of the rates. The estimated DCC-GARCH (1, 1) reveals that interest rate and exchange rate are dynamically linked negatively, suggesting that exchange rate (or interest rate) is inversely sensitive to interest rate (or exchange rate) in Nigeria. This result was substantiated by the estimated BEKK-GARCH(1, 1) model. Furthermore, the effects of news (shocks spillover) are bi-directional across the markets. However, volatility spillover is unidirectional, from exchange rate to interest rate, suggesting that, calming the volatility in foreign exchange market does guarantee moderation of volatility in the money market, whereas the reverse is not the case. The results underscore the growing influence of foreign exchange market in the financial space of the Nigerian economy. Thus, the study recommends that foreign exchange policies aimed at maintaining exchange rate stability should be sustained, having found exchange rate to be more effective in moderating interest rate volatility in Nigeria.

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