Exploring exchange rate based policy coordination in SADC

Abstract

Purpose This paper explores the possibilities for policy coordination in the Southern African Development Community (SADC) as well as real effective exchange rate (REER) stability as a prerequisite towards sensible monetary integration. The underlying hypothesis goes with the assertion that countries meeting optimum currency area conditions face more stable exchange rates. Design/methodology/approach The quantitative analysis encompasses 12 SADC member states over the period 1995-2012. Correlation matrixes, dynamic pooled mean group (PMG) and mean group (MG) estimators and real effective exchange rate (REER) and real exchange rate (RER) equilibrium and misalignment analysis are carried out to arrive at the conclusions. Findings The study finds that the structural variables used in the PMG model show that there are common fiscal and monetary policy variables that determine REER/RER in the region. However, the exchange rate equilibrium misalignment analysis reveals that SADC economies are characterised by persistent overvaluation at least in the short term. This calls for further sustained policy coordination in the region. Practical implications The findings in this paper have important policy implications for economic stability and for the attempt of policy coordination in SADC region for the proposed monetary integration to proceed. Originality/value This study is the first attempt that relates the exchange rate as a policy coordination instrument among SADC economies.

A New EEMD‐Effective Transfer Entropy‐Based Methodology for Exchange Rate Market Information Transmission in Southern Africa Development Community

“…Among related studies, the linkage of the exchange rate in West Africa Monetary Zones [3][4][5] has been severally investigated. Within the SADC bloc, several studies have attempted to model the interaction of exchange rate markets [1,2,[6][7][8][9]. Except for Adam et al [1] and Adam et al [2], the identified studies seldom studied the comovement of the exchange rate from a multiscale perspective.…”

“…Except for Adam et al [1] and Adam et al [2], the identified studies seldom studied the comovement of the exchange rate from a multiscale perspective. e exchange rate market is a complex system with varying participants with varying objectives, investment preferences, and motives as depicted by the heterogeneous market hypothesis [1,2,[9][10][11].…”

Impact of Macro Economic Variables on Return on Assets of Textile Industry of Pakistan

“…The investigation by [2] evaluated the change of imports price of host currency transmits the direct impact of exchange rate on price, consequently demand for import will increase which drives up domestic currency imports price which shows the exchange rate may have an impact on trade performance. Similarly, [42] used REER and RER as dependent variables for the countries of optimum currency area (OCA) and found exchange rate the important tool to make economy stable.…”