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Economic Integration and Exchange Rate Dynamics in the West African Monetary Zone

Author

Listed:
  • George Tweneboah
  • Daniel Agyapong
  • Siaw Frimpong

    (University of Witwatersrand)

Abstract

We revisit the validity of long-run purchasing power parity in the West African Monetary Zone for quarterly data spanning from 1960 up to 2014. By allowing for unknown endogenous structural breaks in the data, the evidence indicates the existence of cointegration between nominal exchange rates and prices in all the countries. The results support that the PPP holds and can serve as a benchmark for exchange rate modeling in the sub-region. However, the diverse speeds of adjustment towards the equilibrium relationship suggests to exchange rate policymakers to take into account individual economic, social and political circumstances of the countries. We discuss the implications of these findings to guide policy choices in the monetary zone.

Suggested Citation

  • George Tweneboah & Daniel Agyapong & Siaw Frimpong, 2016. "Economic Integration and Exchange Rate Dynamics in the West African Monetary Zone," The African Finance Journal, Africagrowth Institute, vol. 18(1), pages 53-76.
    • Handle: RePEc:afj:journl:v:18:y:2016:i:1:p:53-76
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    Cited by:

    1. Peterson Owusu Junior & Anokye M. Adam & George Tweneboah, 2017. "Co-movement of real exchange rates in the West African Monetary Zone," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1351807-135, January.

    More about this item

    Keywords

    Real exchange rate; mean-reversion; cointegration; structural breaks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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