Exchange Rate Volatility and Economic Growth Nexus in the West African Monetary Zone (WAMZ)


Authors : OKORO,Agwu Sunday; IMAM, Shamsudeen Zubair; KWARSHAK; Kelvin Timothy

Volume/Issue : Volume 8 - 2023, Issue 3 - March

Google Scholar : https://bit.ly/3TmGbDi

Scribd : https://bit.ly/3VkLAM0

DOI : https://doi.org/10.5281/zenodo.7879842

Abstract : This study assessed the relationship between exchange rate volatility and economic growthin the west African monetaryzone (WAMZ). The study employed annualized panel dataset that spans from 1989 to 2019, using analytical technique ofthe fixed-effect panel dynamic threshold model.The GARCH technique was employed to ascertain the exchange rate volatility of the selected WAMZ Member States including, Nigeria, Ghana, and The Gambia, while Guinea, Sierra Leone and Liberia were dropped from the observation owning to non-availability of data. The results show thatthe first lag of real GDP(Rgdp), has a significant and positive relationship with the dependent variable. While exchange rate volatility has a negative but insignificant relationship with economic growth. The study also indicate that inflation is negatively and significantly related to economic growth within the countries, whereas interest rate is positively and insignificantly related to economic growth. Given the importance of exchange rate on economic growth through facilitating international trade and investment in the WAMZ region, these countries’ monetary authorities, government and other relevant agencies should adopt measures that will discourage imports and encourage exports and adapt an exchange rate policy that principally seeks to stabilize exchange rates with the zone.

Keywords : Exchange rate volatility, GARCH (1,1) model.

This study assessed the relationship between exchange rate volatility and economic growthin the west African monetaryzone (WAMZ). The study employed annualized panel dataset that spans from 1989 to 2019, using analytical technique ofthe fixed-effect panel dynamic threshold model.The GARCH technique was employed to ascertain the exchange rate volatility of the selected WAMZ Member States including, Nigeria, Ghana, and The Gambia, while Guinea, Sierra Leone and Liberia were dropped from the observation owning to non-availability of data. The results show thatthe first lag of real GDP(Rgdp), has a significant and positive relationship with the dependent variable. While exchange rate volatility has a negative but insignificant relationship with economic growth. The study also indicate that inflation is negatively and significantly related to economic growth within the countries, whereas interest rate is positively and insignificantly related to economic growth. Given the importance of exchange rate on economic growth through facilitating international trade and investment in the WAMZ region, these countries’ monetary authorities, government and other relevant agencies should adopt measures that will discourage imports and encourage exports and adapt an exchange rate policy that principally seeks to stabilize exchange rates with the zone.

Keywords : Exchange rate volatility, GARCH (1,1) model.

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