n African Finance Journal - Common volatility trends across East African foreign exchange markets
|Article Title||Common volatility trends across East African foreign exchange markets|
|© Publisher:||AfricaGrowth Institute|
|Journal||African Finance Journal|
|Affiliations||1 Bank of Botswana and 2 Bank of Botswana|
|Publication Date||Jan 2013|
|Pages||56 - 81|
|Keyword(s)||Convergence, East Africa, Exchange rate, F31, F36, GARCH and Volatility|
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.
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