Advanced Search
MyIDEAS: Login to save this article or follow this journal

Nominal Exchange Rates and Price Convergence in the West African Monetary Zone

Contents:

Author Info

  • Paul Alagidede

    (Stirling Management School, Division of Economics, University of Stirling, U.K.)

  • George Tweneboah

    (School of Management, University of Leicester, U.K.)

  • Anokye M. Adam

    (School of Management, University of Leicester, U.K.)

Abstract

We investigate nominal exchange rates and nominal price convergence in the West African Monetary Zone. Using data for the first quarter of 1974 through the first quarter of 2007, we find that real exchange rates in The Gambia, Ghana, Nigeria, and Sierra Leone follow a random walk. Further, we show that nominal exchange rates and nominal prices adjust at different speeds to achieve long-run purchasing power parity, with the former adjusting faster than the latter. Finally, we argue that the success (or otherwise) of a second monetary zone in West Africa depends on well coordinated macroeconomic policies and on minor divergence in prices and exchange rates to eliminate excessive arbitrage profits that may arise.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ijbe.org/table%20of%20content/pdf/vol7-3/vol7-3-01.pdf
Download Restriction: no

File URL: http://www.ijbe.org/table%20of%20content/abstract/Vol.7/No.3/01.htm
Download Restriction: no

Bibliographic Info

Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 7 (2008)
Issue (Month): 3 (December)
Pages: 181-198

as in new window
Handle: RePEc:ijb:journl:v:7:y:2008:i:3:p:181-198

Contact details of provider:
Postal: 100 Wenhwa Road, Seatwen, Taichung
Web page: http://www.ijbe.org/
More information through EDIRC

Related research

Keywords: purchasing power parity; real exchange rate stationarity; convergence; West African Monetary Zone;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Charles Engel & James C. Morley, 2001. "The Adjustment of Prices and the Adjustment of the Exchange Rate," NBER Working Papers 8550, National Bureau of Economic Research, Inc.
  2. Lawrence H. Officer, 1982. "The Purchasing-Power-Parity Theory of Gerrard de Malynes," History of Political Economy, Duke University Press, vol. 14(2), pages 256-259, Summer.
  3. Saikkonen, Pentti & L├╝tkepohl, Helmut, 1999. "Testing for a unit root in a time series with a level shift at unknown time," SFB 373 Discussion Papers 1999,72, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  4. JamesR. Lothian & MarkP. Taylor, 2008. "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 118(532), pages 1742-1763, October.
  5. James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Working Papers, York University, Department of Economics 1996_07, York University, Department of Economics.
  6. Joseph Kargbo, 2009. "Financial integration and parity reversion in real exchange rates of emerging markets," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1), pages 29-33.
  7. Krugman, Paul R., 1978. "Purchasing power parity and exchange rates : Another look at the evidence," Journal of International Economics, Elsevier, vol. 8(3), pages 397-407, August.
  8. Joseph Kargbo, 2003. "Food prices and long-run purchasing power parity in Africa," Development Southern Africa, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(3), pages 321-336.
  9. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 5.
  10. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  12. Adler, Michael & Lehmann, Bruce, 1983. " Deviations from Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, American Finance Association, vol. 38(5), pages 1471-87, December.
  13. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
  14. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, Elsevier, vol. 71(1-2), pages 117-143.
  15. Ronald MacDonald & Luca Antonio Ricci, 2001. "PPP and the Balassa Samuelson Effect," IMF Working Papers 01/38, International Monetary Fund.
  16. R. Macdonald & L. Ricci, 2003. "PPP and the Balassa Samuelson Effect: The Role of the DistributionSector," DNB Staff Reports (discontinued), Netherlands Central Bank 81, Netherlands Central Bank.
  17. Frenkel, Jacob A., 1978. "Purchasing power parity : Doctrinal perspective and evidence from the 1920s," Journal of International Economics, Elsevier, vol. 8(2), pages 169-191, May.
  18. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, Elsevier, vol. 39(1-2), pages 199-211.
  19. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 16(1), pages 53-78, January.
  20. Caner, Mehmet & Kilian, Lutz, 2000. "Size Distortions Of Tests Of The Null Hypothesis Of Stationarity: Evidence And Implications For The PPP Debate," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2425, C.E.P.R. Discussion Papers.
  21. Peter Liu, 1992. "Purchasing power parity in Latin America: A co-integration analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 128(4), pages 662-680, December.
  22. Hakkio, Craig S., 1984. "A re-examination of purchasing power parity : A multi-country and multi-period study," Journal of International Economics, Elsevier, vol. 17(3-4), pages 265-277, November.
  23. Holmes, Mark J, 2000. "Does Purchasing Power Parity Hold in African Less Developed Countries? Evidence from a Panel Data Unit Root Test," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 9(1), pages 63-78, March.
  24. Joseph M. Kargbo, 2004. "Purchasing Power Parity And Exchange Rate Policy Reforms In Africa," South African Journal of Economics, Economic Society of South Africa, vol. 72(2), pages 258-281, 06.
  25. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  26. Joseph Kargbo, 2006. "Purchasing Power Parity and real exchange rate behaviour in Africa," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1-2), pages 169-183.
  27. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195060119, October.
  28. Kim, Yoonbai, 1990. "Purchasing power parity : Another look at the long-run data," Economics Letters, Elsevier, vol. 32(4), pages 339-344, April.
  29. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, American Finance Association, vol. 45(1), pages 157-74, March.
  30. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 584.
  31. Joseph Kargbo, 2000. "Impacts of monetary and macroeconomic factors on food prices in eastern and southern Africa," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(11), pages 1373-1389.
  32. Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Asongu, Simplice A, 2013. "REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union," MPRA Paper 52211, University Library of Munich, Germany.
  2. Raji, Rahman Olanrewaju, 2012. "REAL Exchange Rate Misalignment and Economic Performance of WEST AFRICAN MONETARY ZONE:Implications for macroeconomic unionisation," MPRA Paper 37385, University Library of Munich, Germany.
  3. Gilles Duffrenot & Kimiko Sugimoto, 2010. "Pegging the future West African single currency in regard to internal/external competitiveness: a counterfactual analysis," William Davidson Institute Working Papers Series wp974, William Davidson Institute at the University of Michigan.
  4. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ijb:journl:v:7:y:2008:i:3:p:181-198. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yi-Ju Su).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.