International transmission of shocks and African forex markets

Energy Economics. 2024. Vol. 131. Article 107382.

Huang S., Bossman A., Gubareva M., Teplova T.

We explore the influence of oil price and geopolitical risk (GPR) on the international transmission of shocks within African forex markets. To gauge the dynamics of shock transmission, we employ the TVP-VAR connectedness model using daily data spanning over the period 2000–2023. We show that shock transmission between oil-exporting and oil-importing countries heterogeneously depends on oil and GPR innovations. We also provide empirical evidence that return and volatility shock transmission between oil, GPR and African forex rates depends on economic events and more pronounced during financial stresses, which can alter the transmission-receiver roles of the system variables. In pairs, we find that foreign exchange spillovers within and across African exporters and importers depend on oil and GPR shocks. This emphasizes the importance of utilizing the partial connectedness model to assess the linkages shared by African forex markets in the face of oil and GPR. Our results are potentially insightful for market players and forex market regulators.

Keywords: geopolitical risks, Dynamic connectedness, Return and volatility spillovers, African forex markets, International shock transmission, Oil importers and exporters, Shock transmitters and receivers, TVP-VAR model, Partial connectedness model

Publication based on the results of: Modelling the behavior of financial assets in the situation of the new normality (2024)