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Common Volatility Trends Across East African Foreign Exchange Markets

Author

Listed:
  • Pako Thupayagale
  • Thato Mokoti

    (Bank of Botswana)

Abstract

This paper explores financial market convergence in East African economies by analysing the long-run volatility trends in the currencies of this region. In particular, a Component-GARCH model is estimated, which is able to distinguish short- and long-run volatility dynamics. Common movement of the long-run component is in turn used to infer if financial and economic convergence is occurring. The empirical results do not suggest the existence of a common volatility process in East African foreign exchange markets. Overall volatility trends of each currency appear to be largely country specific, suggesting that the introduction of a currency union may be premature.

Suggested Citation

  • Pako Thupayagale & Thato Mokoti, 2013. "Common Volatility Trends Across East African Foreign Exchange Markets," The African Finance Journal, Africagrowth Institute, vol. 15(1), pages 56-81.
    • Handle: RePEc:afj:journl:v:15:y:2013:i:1:p:56-81
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    More about this item

    Keywords

    Exchange rate; volatility; GARCH; convergence; East Africa;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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