African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4157

Full Length Research Paper

Exchange rate dynamics and monetary unions in Africa: A fractional integration and cointegration analysis

Borja Balparda
  • Borja Balparda
  • University of Navarra, Faculty of Economics, Pamplona, Spain.
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Guglielmo Maria Caporale
  • Guglielmo Maria Caporale
  • Department of Economics and Finance, Brunel University, London, UB8 3PH, UK.
  • Google Scholar
Luis A. Gil-Alana
  • Luis A. Gil-Alana
  • University of Navarra, Faculty of Economics, Pamplona, Spain.
  • Google Scholar

  •  Received: 28 April 2015
  •  Accepted: 28 September 2015
  •  Published: 28 November 2015


This paper uses fractional integration and cointegration techniques to analyze nominal exchange rate dynamics in three groups of African countries aiming to form currency unions in the near future. The proposed unions are the WAMZ (West African Monetary Zone), the EAC (East African Community), and the SADC (South African Development Community). The univariate results indicate that in all but three countries (Democratic Republic of Congo, Mauritius and Madagascar) the nominal exchange rate series exhibit a unit root. Concerning the multivariate results, for the WAMZ cointegration is only found in the case of Ghana with both Gambia and Guinea; for the EAC for Rwanda with Burundi, and Tanzania with both Rwanda and Uganda. Finally, for the SADC, cointegration is found in only 15 out of 66 cases, including Swaziland with South Africa, Zambia with Malawi, and Mozambique with both Lesotho and Tanzania. The policy implications of these findings are also discussed.

Key words: Monetary unions, Africa, exchange rates.