The emergence of regional business cycle in Africa—a reality or myth? A Bayesian dynamic factor model analysis

Oyeyinka S. Omoshoro‐Jones; Lumengo Bonga‐Bonga

doi:10.1111/twec.12888

journal article Nov 12, 2019

The emergence of regional business cycle in Africa—a reality or myth? A Bayesian dynamic factor model analysis

Oyeyinka S. Omoshoro‐Jones

Lumengo Bonga‐Bonga

The World Economy Vol. 43 No. 1 pp. 239-273 · Wiley

View at Publisher Save 10.1111/twec.12888

Abstract

AbstractThis paper examines the evolution and the underlying forces of the business cycle co‐movements among seven African (A‐7) countries over the period 1970–2016. These countries accounted for over 60% of regional GDP, have abundant natural resources, access to the global capital market and widely viewed as potential drivers of regional (or “African”) business cycle. We model the national business cycle using real output, consumption and investment. We employ a dynamic factor model to decompose fluctuations in these macro‐variables into a regional, country‐specific and idiosyncratic components using Bayesian methods. We also analyse the relative importance of some notable drivers of business cycle fluctuations found in the literature. We find that the idiosyncratic component is dominating cyclical fluctuations in the A‐7 countries, while country‐specific and regional factors play a negligible role suggesting the inexistence of a common regional cycle despite deepening intra‐African trade. Among the driving variables, the terms‐of‐trade shocks exert greater influence on the A‐7 business cycle, while exchange rate movements and changes in money supply explain sizeable fluctuations in consumption and investment in most of the A‐7 countries. Shocks associated with changes in relative domestic oil prices, monetary and fiscal policies cause large output fluctuations.

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Details

Published: Nov 12, 2019
Vol/Issue: 43(1)
Pages: 239-273
License: View

Authors

O

Oyeyinka S. Omoshoro‐Jones

Department of Economics and Econometrics University of Johannesburg Auckland Park South Africa

L

Lumengo Bonga‐Bonga

Department of Economics and Econometrics University of Johannesburg Auckland Park South Africa

Cite This Article

Oyeyinka S. Omoshoro‐Jones, Lumengo Bonga‐Bonga (2019). The emergence of regional business cycle in Africa—a reality or myth? A Bayesian dynamic factor model analysis. The World Economy, 43(1), 239-273. https://doi.org/10.1111/twec.12888

The emergence of regional business cycle in Africa—a reality or myth? A Bayesian dynamic factor model analysis

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