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Monetary integration in Eastern and Southern Africa: choosing a currency peg for COMESA

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  • Carlos Vieira

    ()
    (CEFAGE-UÉ, Universidade de Évora, Portugal)

  • Isabel Vieira

    ()
    (CEFAGE-UÉ, Universidade de Évora, Portugal)

Abstract

African countries involved in monetary integration projects have been advised to peg their currencies against an external anchor before the definite fixing of exchange rates. In this study we estimate optimum currency area indices to determine, between four alternatives, which international currency would be the most suitable anchor for COMESA members and for a set of other selected African economies. We conclude that the euro and the British pound prevail over the US dollar or the yen; that the euro would be the best pegging for most, but not all, COMESA members; and that some of these economies display evidence of more intense integration with third countries, with which they share membership in other (overlapping) regional economic communities, than within COMESA.

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Bibliographic Info

Paper provided by University of Evora, CEFAGE-UE (Portugal) in its series CEFAGE-UE Working Papers with number 2012_03.

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Length: 32 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:cfe:wpcefa:2012_03

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Keywords: Optimum currency areas; Monetarry anchor; Currency pegs; African regional economic communities; African monetary integration.;

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References

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  1. Christopher Meissner & Nienke Oomes, 2006. "Why Do Countries Peg the Way They Peg? The Determinants of Anchor Currency Choice," WEF Working Papers, ESRC World Economy and Finance Research Programme, Birkbeck, University of London 0009, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  2. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(4), pages 518-29, October.
  3. Mahvash Saeed Qureshi & Charalambos G. Tsangarides, 2006. "What is Fuzzy About Clustering in West Africa?," IMF Working Papers, International Monetary Fund 06/90, International Monetary Fund.
  4. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(2), pages 454-481, May.
  5. Bayoumi, Tamim & Ostry, Jonathan D, 1997. "Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa: Implications for Optimum Currency Arrangements," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 6(3), pages 412-44, October.
  6. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 753-760, April.
  7. Fabrizio Carmignani, 2006. "The Road to Regional Integration in Africa: Macroeconomic Convergence and Performance in COMESA," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 15(2), pages 212-250, June.
  8. Xavier Debrun & Catherine A. Pattillo & Paul R. Masson, 2010. "Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa," IMF Working Papers, International Monetary Fund 10/157, International Monetary Fund.
  9. Zhao, Xiaodan & Kim, Yoonbai, 2009. "Is the CFA Franc Zone an Optimum Currency Area?," World Development, Elsevier, Elsevier, vol. 37(12), pages 1877-1886, December.
  10. Steven K. Buigut & Neven T. Valev, 2006. "Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 10(4), pages 586-603, November.
  11. Roman Horvath, 2007. "Ready for Euro? Evidence on EU new member states," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(14), pages 1083-1086.
  12. Terence D. Agbeyegbe, 2008. "On the feasibility of a monetary union in the Southern Africa Development Community," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 13(2), pages 150-157.
  13. Devereux, M.B. & Lane, P.R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEG Working Papers, Trinity College Dublin, Department of Economics 20025, Trinity College Dublin, Department of Economics.
  14. Roman Horvath, 2005. "Exchange rate variability, pressures and optimum currency area criteria: some empirical evidence from the 1990s," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(15), pages 919-922.
  15. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(3), pages 483-99, June.
  16. Bayoumi, Tamim & Eichengreen, Barry, 1998. "Exchange rate volatility and intervention: implications of the theory of optimum currency areas," Journal of International Economics, Elsevier, Elsevier, vol. 45(2), pages 191-209, August.
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