Financial Integration and Business Cycle Synchronization in Sub-Saharan Africa

This paper discusses the theoretical choice of exchange rate anchors in Sub-Saharan African countries that are facing external vulnerabilities. To reduce instability, policymakers choose among promoting external competitiveness using a real anchor, lowering the burden of external debt using a nominal anchor or using a policy mix of both anchors. We observe that these countries tend to adopt mixed anchor policies. We solve a state space model to explain the determinants of and the strategy behind this policy. We find that the choice of policy mix is a two-step strategy: First, authorities choose the degree of nominal exchange rate flexibility according to the velocity of money, trade openness, foreign debt, degree of exchange rate pass-through and exchange rate target zone. Second, authorities seek to stabilize the real exchange rate depending on the degree of trade integration with the rest of world and the degree of foreign exchange interventions. We conclude with regime-switching estimations to provide empirical evidence of how these economic fundamentals influence exchange rate policy in Sub-Saharan Africa.

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Exchange rate policy and external vulnerabilities in Sub-Saharan Africa: nominal, real or mixed targeting?

Hajj

Dufrénot

Keddad

2020

Applied Economics

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Globalization and business cycles synchronization in sub-Saharan Africa

Bataka

Chedi²

2022

The Journal of International Trade & Economic Development

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Financial Integration and Business Cycle Synchronization in Sub-Saharan Africa

Cited by 2 publications

References 23 publications

Exchange rate policy and external vulnerabilities in Sub-Saharan Africa: nominal, real or mixed targeting?

Exchange rate policy and external vulnerabilities in Sub-Saharan Africa: nominal, real or mixed targeting?

Globalization and business cycles synchronization in sub-Saharan Africa

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