International monetary spillovers and macroeconomic stability in developing countries

Lorna Katusiime; Lorna Katusiime

doi:10.3934/NAR.2021016

National Accounting Review

2021, Volume 3, Issue 3: 310-329. doi: 10.3934/NAR.2021016

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Research article

International monetary spillovers and macroeconomic stability in developing countries

Lorna Katusiime ^,

Economic Research Department, Bank of Uganda, P.O Box 7120, Kampala, Uganda

Received: 03 June 2021 Accepted: 02 September 2021 Published: 07 September 2021
JEL Codes: F36, G01, G12, G14, G15

This paper analyses the impact of international spillovers on macroeconomic stability in developing countries. Specifically, the study investigates the impact of United States (US) monetary policy spillovers in the form of US inflation and Federal funds interest rate on Uganda and Kenya's inflation rates, interest rates and the exchange rates, key macroeconomic indicators of importance to macroeconomic stability. The focus on international spillovers from the USA is due to the dominant role it plays in determining global economic conditions. The study applies the Generalized Vector Autoregressive (GVAR) approach to quantify spillovers across these economies. The results shows that despite recent efforts towards East African regional integration, international spillovers from global economies like the US are more significant in determining macroeconomic stability in developing countries, underscoring the importance of global policy coordination. Specifically, we find an amplification of return and volatility spillovers after the onset of the Global financial crisis.
- international spillovers,
- inflation,
- exchange rates,
- volatility spillovers
Citation: Lorna Katusiime. International monetary spillovers and macroeconomic stability in developing countries[J]. National Accounting Review, 2021, 3(3): 310-329. doi: 10.3934/NAR.2021016

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Abstract

This paper analyses the impact of international spillovers on macroeconomic stability in developing countries. Specifically, the study investigates the impact of United States (US) monetary policy spillovers in the form of US inflation and Federal funds interest rate on Uganda and Kenya's inflation rates, interest rates and the exchange rates, key macroeconomic indicators of importance to macroeconomic stability. The focus on international spillovers from the USA is due to the dominant role it plays in determining global economic conditions. The study applies the Generalized Vector Autoregressive (GVAR) approach to quantify spillovers across these economies. The results shows that despite recent efforts towards East African regional integration, international spillovers from global economies like the US are more significant in determining macroeconomic stability in developing countries, underscoring the importance of global policy coordination. Specifically, we find an amplification of return and volatility spillovers after the onset of the Global financial crisis.

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