DETERMINANTS OF EXCHANGE RATE VOLATILITY AND MACROECONOMIC POLICY IMPLICATIONS IN AFRICAN EMERGING MARKETS: A DYNAMIC PANEL DATA APPROACH

Abstract

This study investigates the determinants of exchange rate volatility in African nations over the period 2000 to 2023 using panel data techniques. Key macroeconomic variables including GDP growth, export performance, broad money supply, and inflation are examined for their influence on exchange rate fluctuations. Employing both static and dynamic panel models, the analysis reveals that export performance and inflation significantly affect exchange rate volatility, while GDP growth and broad money supply show no significant impact. The persistence of volatility is also confirmed through dynamic specifications, highlighting the importance of capturing temporal dependencies. These findings suggest that external sector dynamics and monetary policy credibility play vital roles in stabilizing exchange rates. The study concludes by recommending policies aimed at export diversification, strengthening inflation-targeting frameworks, and enhancing financial market development to manage exchange rate risks effectively in African economies.