Assessing exchange rate dynamics of East Africa: fragmented or integrated?

摘要

This article investigates the dynamics of the currency markets of the East African Community, using forecast error variance decompositions from vector autoregressions. It shows that the exchange rates of Kenya, Tanzania and Uganda have been mainly driven by shocks to their own economies, while those of Burundi and Rwanda have been increasingly dictated by spillovers from the dollar and euro since the global financial crisis. Interactions within the region are limited, although there is some sign of elevation. This makes a clear contrast with European currency markets prior to the euro, where spillovers from the German mark dominated the markets.