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Exchange rate dynamics and monetary integration in the EAC contries

Author

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  • Cuiabano, Simone
  • Opoku-Afari, Maxwell

Abstract

A major challenge for most countries in Sub-Saharan Africa is the evaluation of the exchange rate. This is more so in the East African Community (EAC) where macroeconomic and exchange rate management has been in particular challenged by massive foreign aid inflows partly as a result of Heavily Indebted Poor Countries (HIPC) initiative and other debt reliefs. In addition; improved macroeconomic management in the last decade attracted both short and medium to long term inflows to the region, as foreign investors turn to developing and emerging economies for yield. In this paper we estimate the fundamental equilibrium exchange rate (FEER) model for all the countries in the EAC and we assess the convergence of existing exchange rate regimes in the EAC. Our main contribution is that this exercise may contribute as a useful background for the ultimate decision of which exchange rate management framework will best fit the region during the transition period to monetary union.

Suggested Citation

  • Cuiabano, Simone & Opoku-Afari, Maxwell, 2017. "Exchange rate dynamics and monetary integration in the EAC contries," TSE Working Papers 17-848, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:32101
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    References listed on IDEAS

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    More about this item

    Keywords

    Real exchange rates; EAC countries; cointegration; exchange rate regimes;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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