Do pandemics reduce or spur the volatility of exchange rate variability? The case of Covid-19 in top Africa hit countries

Contentiously, a pandemic is expected to render havoc to economies globally as it cripples economic activities both domestically and internationally. This is because of potential lockdowns to reduce the risk of spread of the disease which comes as a trade-off to active economic activities. This strategy is detrimental to the whole macroeconomic performance of an economy especially for highly volatile factors such as exchange rate. In line with this presumption, the current study tries to determine the impact of the Covid-19 pandemic on the exchange rate variability of the top 5 hit African countries. This includes South Africa, Morocco, Egypt, Ethiopia, and Nigeria. The study used GARCH-type family models. The study found that there is a volatility effect on the exchange rate given the occurrence of the Covid-19 which was high and persistent for a long period. But the estimates show that Covid-19 had a varying effect across countries as it is seen to have a negative effect in countries like South Africa, Morocco, and Nigeria while the effect in countries like Egypt and Ethiopia was found to be positive. The study concludes that as expected there is presume volatility effect of the Covid-19 in the exchange rate market despite the shutdown of economic activities globally. However, the effect varies across countries which could be attributed to exchange rate strategies and the number of cases.