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International transmission of shocks and African forex markets

Author

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  • Huang, Shoujun
  • Bossman, Ahmed
  • Gubareva, Mariya
  • Teplova, Tamara

Abstract

We explore the influence of oil price and geopolitical risk (GPR) on the international transmission of shocks within African forex markets. To gauge the dynamics of shock transmission, we employ the TVP-VAR connectedness model using daily data spanning over the period 2000–2023. We show that shock transmission between oil-exporting and oil-importing countries heterogeneously depends on oil and GPR innovations. We also provide empirical evidence that return and volatility shock transmission between oil, GPR and African forex rates depends on economic events and more pronounced during financial stresses, which can alter the transmission-receiver roles of the system variables. In pairs, we find that foreign exchange spillovers within and across African exporters and importers depend on oil and GPR shocks. This emphasizes the importance of utilizing the partial connectedness model to assess the linkages shared by African forex markets in the face of oil and GPR. Our results are potentially insightful for market players and forex market regulators.

Suggested Citation

  • Huang, Shoujun & Bossman, Ahmed & Gubareva, Mariya & Teplova, Tamara, 2024. "International transmission of shocks and African forex markets," Energy Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:eneeco:v:131:y:2024:i:c:s0140988324000902
    DOI: 10.1016/j.eneco.2024.107382
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    Keywords

    African forex markets; International shock transmission; Oil importers and exporters; Geopolitical risks; Dynamic connectedness; Return and volatility spillovers; Shock transmitters and receivers; TVP-VAR model; Partial connectedness model;
    All these keywords.

    JEL classification:

    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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