Exchange Rate Volatility and Output Growth in the Economic Community of West African States (ECOWAS) (1980- 2015)

Abstract

This study examined the impact of exchange rate volatility on output growth in the ECOWAS, using time series data spanning from 1980 to 2015. The study employed panel data analysis to examine the relationship between exchange rate volatility and output growth among the selected countries within the ECOWAS countries. GARCH was used to establish the existence of volatility while Panel ARDL was used to assess the magnitude of the effects of exchange rate volatility on output growth in ECOWAS. The result of volatility test from GARCH confirmed the presence of volatility in Real Effective Exchange Rate (REER) across all the selected countries in ECOWAS. Furthermore, the short run ADRL results revealed that, there is a negative but insignificant relationship between exchange rate volatility and output growth in ECOWAS while the long-run ARDL results showed that, exchange rate volatility has positive but insignificant impact on output growth in ECOWAS. Based on the findings of this study, it is therefore recommended that exchange rate policy that will pave way for competitiveness should be formulated by monetary authorities in ECOWSA. In addition, ECOWAS countries should endeavour to add more value to their products before exporting them to other countries.