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Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa

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Author Info

  • Xavier Debrun
  • Catherine A. Pattillo
  • Paul R. Masson

Abstract

This paper develops a full-fledged cost-benefit analysis of monetary integration, and applies it to the currency unions actively pursued in Africa. The benefits of monetary union come from a more credible monetary policy, while the costs derive from real shock asymmetries and fiscal disparities. The model is calibrated using African data. Simulations indicate that the proposed EAC, ECOWAS, and SADC monetary unions bring about net benefits to some potential members, but modest net gains and sometimes net losses for others. Strengthening domestic macroeconomic frameworks is shown to provide some of the same improvements as monetary integration, reducing the latter’s relative attractiveness.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/157.

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Length: 68
Date of creation: 01 Jul 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/157

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Related research

Keywords: Monetary unions; Africa; Sub-Saharan Africa; Economic integration; Economic models; Cross country analysis; inflation; monetary integration; monetary policy; central bank; terms of trade; trade shocks; terms of trade shocks; monetary fund; monetary unification; per capita income; regional integration; regional trade; monetary zone; institutional convergence; free trade; monetary autonomy; seigniorage revenues; economic community; trade area; trade flows; aggregate demand; monetary stability; asymmetric shocks; free trade area; monetary area; monetary arrangements; trade intensity; oil exporter; monetary policies; monetary regimes; optimum currency areas; internal trade; trade creation; bilateral trade; patterns of trade; transactions costs; equilibrium model; trade integration; monetary authorities; oil revenues; money stock; money market; monetary institutions; common market; world economy; price stability; exogenous shock; internal tariffs; national monetary policy; tariff barriers; external shocks; free trade agreement; national policies; non-tariff barriers; economic convergence; pattern of trade; monetary reform; trade effect; internal trade barriers; european monetary union; domestic reforms; monetary policy decisions; monetary policy operation; free trade arrangements; member country; trade changes; idiosyncratic shocks; liquidity management; trade share; political economy; monetary discipline; international monetary arrangements; external tariff; evidence of convergence; national law; trade links; independent monetary policy; expansionary monetary policy; dynamic effects; commodity exporters; exchange rate fluctuations; factor analysis; intermediate monetary target; regional trade integration; exchange rate policies; national monetary policies; open economy; exchange rate regimes; tariff reduction; money supplies; value-added tax; prudential supervision; improving policy credibility; output growth; monetary expansions; monetary instrument; impact of trade; trade relations; trading arrangements; trade partners; trade data; domestic money market; terms-of-trade shocks; rules of origin; market integration;

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References

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  1. Steven K. Buigut & Neven Valev, 2005. "Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0504, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Romain Houssa, 2004. "Monetary Union in West Africa and Asymmetric Shocks: A Dynamic Structural Factor Model Approach," Economics Series Working Papers WPS/2004-17, University of Oxford, Department of Economics.
  3. Michal Hulej & Charalambos G. Tsangarides & Pierre Ewenczyk, 2006. "Stylized Factson Bilateral Trade and Currency Unions," IMF Working Papers 06/31, International Monetary Fund.
  4. Mario Mansour & Michael Keen, 2009. "Revenue Mobilization in Sub-Saharan Africa," IMF Working Papers 09/157, International Monetary Fund.
  5. Tsangarides, Charalambos G. & Qureshi, Mahvash Saeed, 2008. "Monetary Union Membership in West Africa: A Cluster Analysis," World Development, Elsevier, vol. 36(7), pages 1261-1279, July.
  6. Roel Beetsma & Massimo Giuliodori, 2010. "The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 603-41, September.
  7. David Fielding & Kalvinder Shields, 2000. "Modeling Macroeconomic Shocks in the CFA Franc Zone," Discussion Papers in Economics 00/7, Department of Economics, University of Leicester.
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Cited by:
  1. Hachicha, Ahmed & Lean Hooi Hooi, 2013. "Inflation, inflation uncertainty and output in Tunisia," Economics Discussion Papers 2013-1, Kiel Institute for the World Economy.
  2. Carlos Vieira & Isabel Vieira, 2013. "Monetary Integration In Eastern And Southern Africa: Choosing A Currency Peg For Comesa," South African Journal of Economics, Economic Society of South Africa, vol. 81(3), pages 356-372, 09.
  3. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, vol. 32(C), pages 463-482.
  4. Thomas Kigabo RUSUHUZWA & Paul Robert MASSON, 2012. "Design and Implementation of a Common Currency Area in the East African Community," Working Papers tecipa-451, University of Toronto, Department of Economics.

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