African Finance Journal - Volume 14, Issue 2, 2012
Volumes & issues
Volume 14, Issue 2, 2012
Source: African Finance Journal 14, pp 1 –22 (2012)More Less
This paper examines current account sustainability of eight countries in the Economic Community of Western African States (ECOWAS); Burkina Faso, Côte d'Ivoire, Ghana, Mali, Niger, Nigeria, Sénégal and Togo. The paper uses the intertemporal solvency framework of Hakkio and Rush (1991) and Husted (1992) and cointegration methodology to test for a long run relation between exports and imports items of the current account. Further, we estimate this long-run relationship using dynamic OLS. Our results show that only Sénégal and Togo have sustainable current account positions. Of the others, Ghana and Niger have a statistically significant relation between exports and imports although it is not strong enough, and thus they continue to have vulnerable current account positions. The rest of the countries have unsustainable current account deficits. The paper argues that monetary, trade and political reforms are necessary to reduce vulnerabilities in external positions.
Government deposits at the Central Bank and monetary policy operations in a monetary targeting framework : a threshold autoregressive model for KenyaSource: African Finance Journal 14, pp 23 –42 (2012)More Less
The study employs a threshold autoregressive (TAR) model to estimate the level of government deposits at the Central Bank of Kenya (CBK), which triggers a regime change in monetary policy operations / liquidity management. The TAR model is applied on daily data during the period November 30, 2005 to August 10, 2010 and it establishes a threshold level of government deposits at CBK as Ksh 46,665 million with a delay parameter of 1 day. The threshold estimate is useful for cash planning and liquidity management by the CBK and the Treasury. Though the study is Kenya-specific, this analysis can be applied in any country in Sub-Saharan Africa where the interbank market is not well developed and government cashflows have significant effect on banking sector liquidity.
Source: African Finance Journal 14, pp 43 –63 (2012)More Less
According to uncovered interest parity (UIP) theory, the rates of return on comparable assets should be equal across the world, implying that the exchange rate would adjust to ensure that differences between world interest rates average zero. In addition, real interest parity (RIP) prevails when there is long-run convergence between real returns on assets. The aim of this paper is to examine the mean reverting property of real interest rates and the RIP condition in South Africa, using Wavelet analysis. Wavelet analysis is a superior method of testing the properties of a time series, since it does not require stationarity, yields consistent estimates for the integration order (d), and takes into account complex behaviour. It thus provides an alternate fractional integration method which examines the order of integration of the series. The results show that real interest parity between long term interest rates is not supported, as most of the estimated d values exhibit random walk behaviour. For the short-term interest rates there are limited support for long run mean reversion and long memory, but still no evidence that real interest parity holds. Overall, the real interest rate differentials tend to be random walk, which supports the studies that preceded Moosa and Bhatti (1996).
Source: African Finance Journal 14, pp 64 –84 (2012)More Less
It has been suggested that emerging markets may exhibit nonlinear dependencies due to their propensity for thin trading, high transaction costs and regulatory constraints. Prior research has found evidence of linear serial correlation in South African share returns but tests of nonlinear serial dependence have been limited in this market. This study examines nonlinear serial dependence on a sample of 109 shares from the Johannesburg Stock Exchange (JSE) using a battery of tests and finds evidence of significant nonlinear serial dependence for all shares examined. A windowed test procedure finds, however, that these occurrences are episodic in nature rendering return prediction on the basis of nonlinear serial dependence a potentially complex process.
Author Jonathan ChipiliSource: African Finance Journal 14, pp 85 –106 (2012)More Less
The eight real kwacha bilateral exchange rates examined over the period 1968-2008 in a GARCH framework are characterised by different conditional volatility dynamics. Evidence of asymmetric response to shocks suggests asymmetric central bank reaction to variations in volatility in exchange rates. An index of exchange rate volatility capturing influences specific to Zambia is constructed from the estimated conditional variance using principal components analysis for use as an alternative measure of exchange rate risk.