Exploring currency interdependence in West Africa: a time-varying parameter vector autoregression analysis
ISSN: 1526-5943
Article publication date: 31 January 2025
Issue publication date: 25 February 2025
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.
Keywords
Citation
Bram, A.K., Ofori, C., Mangudhla, T. and Nuta, A.C. (2025), "Exploring currency interdependence in West Africa: a time-varying parameter vector autoregression analysis", Journal of Risk Finance, Vol. 26 No. 2, pp. 320-344. https://doi.org/10.1108/JRF-10-2024-0310
Publisher
:Emerald Publishing Limited
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