Exchange Rate Volatility and Trade Balance in Sub-Saharan African Countries: A Causal Relationship
This study examined the causal nexus between exchange rate volatility and trade balance in 13 sub-Saharan African countries from 2000-2015. Exchange rate volatility was generated using Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. Pairwise Granger causality was used to determine the direction of causality among the variables. The result shows that there is unidirectional causality between exchange rate volatility and trade balance. Furthermore, the result shows that there is bidirectional causality between real exchange rate and exchange rate volatility; and trade balance and economic growth. The study concluded that exchange rate volatility is important in determining trade balance in sub-Saharan African countries.
Exchange Rate Volatility, Real Exchange Rate, Trade Balance, Granger Causality, GARCH
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