Measuring Exchange Market Pressure and Its Contagion in the East African Community. (20th June 2013)

• Record Type: Journal Article
• Authors: Hegerty, Scott W.
• Is Part Of: South African journal of economics. Volume 82:Number 2(2014:Jun.)
• Page Start: 239
• Page End: 257
• Publication Date: 2013-06-20
• Subjects: Economics -- Periodicals; South Africa -- Economic conditions -- Periodicals; Économie politique -- Périodiques; Afrique du Sud -- Conditions économiques -- Périodiques; Economie; ECONOMICS; Electronic journals; 330.5
• DOI: 10.1111/saje.12016
• Languages: English
• ISSNs: 0038-2280

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>As the members of the East African Community seek to further integrate their economies, issues of compatibility arise. How interlinked are these countries' exchange markets, and which currencies are most likely to influence their neighbours? This study constructs monthly indices of exchange market pressure (EMP) for Burundi, Kenya, Rwanda, Tanzania and Uganda over the past decade. Two methods of constructing these indices are shown to exhibit large differences. Vector autoregressive approaches are then applied to the main EMP series and a set of global stock price proxies. Kenya, the dominant economy, is shown to have the largest effect on the region but is not itself affected by other regional currencies. Foreign stock price declines increase EMP for all countries except Tanzania, which is also the least integrated in terms of trade. This suggests that financial integration in the region is uneven – with implications for a successful common currency.</p> </abstract>