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Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa

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  • Coulibaly, Issiaka
  • Gnimassoun, Blaise

Abstract

This paper aims to study the optimality of a monetary union in West Africa by using a new methodology based on the analysis of convergence and co-movements between exchange rate misalignments. Two main advantages characterize this original framework. First, it brings together the information related to several optimum currency area criteria—such as price convergence, terms of trade shocks, trade and fiscal policies—going further than previous studies which are mainly based on only one criterion at a given time. Second, our study detects potential competitiveness differentials which play a key role in the debate on the optimality or not of a monetary union, as evidenced by the recent crisis in the Euro area. Relying on the recent panel cointegration techniques, cluster analyses and robustness tests, our results show that the WAEMU area is the most homogeneous area in Central and Western Africa and could be joined by Ghana, Gambia and, to a lesser extent, Sierra Leone, and that Ghana and Senegal appear to be the best reference countries for the creation of the whole West Africa monetary union.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 463-482

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Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:463-482

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Exchange rate misalignment; Optimum currency area; West African countries;

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Cited by:
  1. Coulibaly, Issiaka & Davis, Junior, 2013. "Exchange rate regimes and economic performance: Does CFA zone membership benefit their economies?," MPRA Paper 54075, University Library of Munich, Germany.
  2. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, vol. 35(C), pages 614-621.
  3. Giscard Assoumou Ella, 2013. "The viability of an economic and monetary union in Africa with a unified currency: evidence from the African economies' reactions to the international income, price and monetary shocks," Working Papers hal-00851594, HAL.
  4. Issiaka Coulibaly & Blaise Gnimassoun, 2013. "Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter?," EconomiX Working Papers 2013-42, University of Paris West - Nanterre la Défense, EconomiX.

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