Empirics of Exchange Rate Explosiveness/Overshooting in Sub-Saharan African Countries: Implications for Foreign Exchange Markets
Authors: David Umoru
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The study estimated conditional explosiveness or volatility of exchange rate for twelve SSA countries from January 1, 2006 to June 29, 2019 using Maximum Likelihood estimator (MLE). The study motivation is deeply rooted on the fact that volatility in exchange rate exposes importers and exporters to exchanges rate risk. Consequently, we became desirous to econometrically estimate degree of volatility persistence in exchange rate of selected SSA countries in relation to the United States of America and its implications for forex markets in SSA. Our empirics reveal that in South Africa, Burkina Faso and Equatorial Guinea, exchange rate volatility is covariance stationary indicating certainty of convergence after perturbation to exchange rate equilibrium. Also, shocks of volatility in exchange rate are explosive and highly persistent in Nigeria, Ghana, Botswana, Mali, Togo, Cote d’ Ivoire, Rwanda, Cape Verde, and Mauritius.We so remark the necessity for exercise of healthy control in managing and monitoring guiding principles of foreign exchange markets constantly in Nigeria, Ghana, Botswana, Mali, Togo, Cote d’ Ivoire, Rwanda, Cape Verde, and Mauritius in line with global code of forex market conduct to guarantee non-volatile behaviour of local currencies.