Exploring currency interdependence in West Africa: a time-varying parameter vector autoregression analysis

Purpose Considering the impact of significant economic and political events, this study investigates the return spillovers and connectedness among eight West African currencies from March 31, 2010, to March 28, 2024. It aims to enhance understanding of the interdependencies within the West African foreign exchange market, providing insights into the region’s risk management and diversification opportunities. Design/methodology/approach Using the time-varying parameter vector autoregression (TVP-VAR) method, this study analyzes daily exchange rate returns to capture the dynamic spillover effects and connectedness among the selected currencies. This approach identifies key transmitters and receivers of return shocks, reflecting the evolving interactions among the currencies over time. Findings The results show that the Sierra Leonean Leone, Cape Verdean Escudo, and West African CFA Franc are significant net transmitters of return shocks. At the same time, the Ghana Cedi, Nigerian Naira, Gambian Dalasi, Guinean Franc, and Liberian Dollar are net receivers, with the Gambian Dalasi being the most affected. These findings suggest relatively low regional spillover connectedness, offering favorable diversification opportunities. Originality/value This study provides a comprehensive analysis of the interconnectedness of West African currencies, contributing to the limited literature on this region. The findings have practical implications for investors and policymakers in managing foreign exchange risks and designing interventions to stabilize the market.

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Publication Details

Journal
The Journal of Risk Finance
Published
2025-01-29
DOI
https://doi.org/10.1108/jrf-10-2024-0310
Citations
4
Primary Topic
Market Dynamics and Volatility
Type
article
Field-Weighted Citation Impact
12.52
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article

Exploring currency interdependence in West Africa: a time-varying parameter vector autoregression analysis

Tinashe Mangudhla, Alina Cristina Nuţă, Andrew Kwamina Bram, Charles Ofori
4 citations
The Journal of Risk Finance
Market Dynamics and Volatility
12.52
article

Exploring currency interdependence in West Africa: a time-varying parameter vector autoregression analysis

Tinashe Mangudhla, Alina Cristina Nuţă, Andrew Kwamina Bram, Charles Ofori
article en
4 citations

Abstract

Purpose Considering the impact of significant economic and political events, this study investigates the return spillovers and connectedness among eight West African currencies from March 31, 2010, to March 28, 2024. It aims to enhance understanding of the interdependencies within the West African foreign exchange market, providing insights into the region’s risk management and diversification opportunities. Design/methodology/approach Using the time-varying parameter vector autoregression (TVP-VAR) method, this study analyzes daily exchange rate returns to capture the dynamic spillover effects and connectedness among the selected currencies. This approach identifies key transmitters and receivers of return shocks, reflecting the evolving interactions among the currencies over time. Findings The results show that the Sierra Leonean Leone, Cape Verdean Escudo, and West African CFA Franc are significant net transmitters of return shocks. At the same time, the Ghana Cedi, Nigerian Naira, Gambian Dalasi, Guinean Franc, and Liberian Dollar are net receivers, with the Gambian Dalasi being the most affected. These findings suggest relatively low regional spillover connectedness, offering favorable diversification opportunities. Originality/value This study provides a comprehensive analysis of the interconnectedness of West African currencies, contributing to the limited literature on this region. The findings have practical implications for investors and policymakers in managing foreign exchange risks and designing interventions to stabilize the market.

The Journal of Risk FinanceVol. 26(2)
University of Science and Technology of China (CN), University of Hull (GB), Azerbaijan State University of Economics (AZ), Danubius International University (RO), Zhejiang Gongshang University (CN)
Openalex Percentile: Top 2%
Market Dynamics and Volatility
12.52
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