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Analysis of asymmetric response of exchange rate to interest rate differentials: The case of African Big 4

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  • Musa, Abdullahi
  • Salisu, Afees A.
  • Aliyu, Victoria O.
  • Mevweroso, Chioma R.

Abstract

Using the case of four leading African economies, namely Algeria, Egypt, Nigeria and South Africa, this paper explores the possibility of asymmetric relationship between exchange rate and interest rate differential. In addition, it also tests whether accounting for structural breaks matters for the nexus. The results vary for the four countries based on the choice of exchange rate regime and countries involved in full-fledged floating or managed floating seem to respond more to variations in interest rate differential. Also, accounting for both asymmetries and structural breaks should not be disregarded when modelling this nexus.

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  • Musa, Abdullahi & Salisu, Afees A. & Aliyu, Victoria O. & Mevweroso, Chioma R., 2021. "Analysis of asymmetric response of exchange rate to interest rate differentials: The case of African Big 4," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    • Handle: RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940820302072
    DOI: 10.1016/j.najef.2020.101320
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    1. Salisu, Afees A. & Gupta, Rangan & Kim, Won Joong, 2022. "Exchange rate predictability with nine alternative models for BRICS countries," Journal of Macroeconomics, Elsevier, vol. 71(C).

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