Are central bank policy rates in Africa cointegrated? Evidence from a fractional cointegration approach

ABSTRACT

We analyse bilateral linkages between Central Bank Policy Rates in Africa and the US, the UK, Japan, Canada, China and the Eurozone using fractional integration and cointegration. Univariate analysis documents evidence of higher than 1 integration for the African countries. For the developed countries, the orders of integration are also above 1 in all markets except for Japan. On bivariate relationships among the countries, we find evidence of cointegration in a number of cases. The article reinforces the view that it will be difficult for many African countries to pursue independent monetary policies that do not consider global policy rate developments.

KEYWORDS:

• Central bank policy rates
• linkages
• fractional integration
• fractional cointegration

JEL CLASSIFICATION:

• C22
• E42
• E52
• E58

Acknowledgments

Luis A. Gil-Alana gratefully acknowledges financial support from the MINEIC-AEI-FEDER ECO2017-85503-R project from ‘Ministerio de Economía, Industria y Competitividad’ (MINEIC), `Agencia Estatal de Investigación’ (AEI) Spain and `Fondo Europeo de Desarrollo Regional’ (FEDER).

Compliance with ethical standards

Prof. Luis A. Gil-Alana gratefully acknowledges financial support from the Ministerio de Educación, Cultura y Deporte (ECO2017-85,503-R).

This article does not contain any studies with human participants or animals performed by any of the authors.

Prof. Luis A. Gil-Alana declares he has no conflict of interest. Prof. Robert Mudida declares he has no conflict of interest. Emmanuel Joel Aikins Abakah declares he has no conflict of interest.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ 1 We have employed here the tests of Robinson and Yajima (2002) and Hualde (2013).

Additional information

Funding

This work was supported by the Ministerio de Economía, Industria y Competitividad, Gobierno de España [ECO2017-85503-R].