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

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  • 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.

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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

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Handle: RePEc:ijb:journl:v:7:y:2008:i:3:p:181-198

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Related research

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

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References

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Citations

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Cited by:
  1. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.
  2. 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.
  3. 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.
  4. Asongu Simplice, 2013. "REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union," Working Papers 13/030, African Governance and Development Institute..

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