Cape Verde: The Case for Euroization
AbstractAfter 10 years of a fixed exchange rate against the euro and a deepening integration with the European Union (EU), the authorities of Cape Verde maintain a strong commitment to nominal stability and are now considering the official euroization of the country. Compared to the current pegging, euroization could be costly if the economic conditions of Cape Verde were to require control over the interest rates and the exchange rate. Given the strong economic and financial integration between Cape Verde and Europe, and the fact that Cape Verde records inflation rates at levels that are similar to those of the European Monetary Union (EMU), the relevant issue is whether the European Central Bank (ECB) monetary policy fits the needs of Cape Verde. In order to answer this question, we empirically assess the synchronization between the business cycle of Cape Verde and the business cycle of the EMU. For that purpose, we compute output gaps and then use conventional correlation measures as well as other indicators recently suggested in the literature. Replicating the methodology for each of the current 27 EU members, our results show that Cape Verde ranks better than several EU countries and even better than some EMU countries. We thus argue that there is a strong case for the euroization of Cape Verde. Euroization would secure the benefits already attained with the pegging to the euro and would warrant additional benefits, most likely with no relevant costs stemming from inappropriate ECB monetary policies.
Download InfoIf 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.
Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 317.
Length: 37 pages
Date of creation: Mar 2009
Date of revision:
Africa; Cape Verde; European Monetary Union; Euroization; Business Cycles;
Other versions of this item:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-22 (All new papers)
- NEP-MAC-2009-03-22 (Macroeconomics)
- NEP-MON-2009-03-22 (Monetary Economics)
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.:
- Harding, Don & Pagan, Adrian, 2006. "Synchronization of cycles," Journal of Econometrics, Elsevier, vol. 132(1), pages 59-79, May.
- Lane, P & Honohan, P, 1999.
"Pegging To The Dollar And The Euro,"
Trinity Economics Papers
996, Trinity College Dublin, Department of Economics.
- Adrian Pagan & Don Harding, 2005. "A suggested framework for classifying the modes of cycle research," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 151-159.
- Maurice Obstfeld & Kenneth Rogoff, 1995.
"The mirage of fixed exchange rates,"
Working Papers in Applied Economic Theory
95-08, Federal Reserve Bank of San Francisco.
- Artis, Michael J & Krolzig, Hans-Martin & Toro, Juan, 1999.
"The European Business Cycle,"
CEPR Discussion Papers
2242, C.E.P.R. Discussion Papers.
- Mike Artis & Hans-Martin Krolzig & Juan Toro, 2002. "The European Business Cycle," Economic Working Papers at Centro de Estudios Andaluces E2002/19, Centro de Estudios Andaluces.
- Artis, M. & Krolzig, H.-M. & Toro, J., 1999. "The European Business Cycle," Economics Working Papers eco99/24, European University Institute.
- Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2002.
"Optimal Currency Areas,"
NBER Working Papers
9072, National Bureau of Economic Research, Inc.
- Alberto Alesina & Robert Barro & Silvana Tenreyro, 2002. "Optimal Currency Areas," Harvard Institute of Economic Research Working Papers 1958, Harvard - Institute of Economic Research.
- Tenreyro, Silvana & Barro, Robert & Alesina, Alberto, 2002. "Optimal Currency Areas," Scholarly Articles 4553033, Harvard University Department of Economics.
- Michael ARTIS & Massimiliano MARCELLINO & Tommaso PROIETTI, 2002.
"Dating the Euro Area Business Cycle,"
Economics Working Papers
ECO2002/24, European University Institute.
- Michael Artis & Massimiliano Marcellino & Tommaso Proietti, 2003. "Dating the Euro Area Business Cycle," Working Papers 237, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Artis, Michael J & Marcellino, Massimiliano & Proietti, Tommaso, 2003. "Dating the Euro Area Business Cycle," CEPR Discussion Papers 3696, C.E.P.R. Discussion Papers.
- Daniel Gros & Carsten Hefeker, 2007. "Monetary Policy In Emu With Asymmetric Transmission And Non-Tradable Goods," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 268-282, 05.
- Barro, Robert & Alesina, Alberto, 2002.
4551795, Harvard University Department of Economics.
- Mark Mink & Jan P.A.M. Jacobs & Jakob de Haan, 2012.
"Measuring coherence of output gaps with an application to the euro area,"
Oxford Economic Papers,
Oxford University Press, vol. 64(2), pages 217-236, April.
- Jakob de Haan & Jan Jacobs & Mark Mink, 2007. "Measuring Synchronicity and Co-movement of Business Cycles with an Application to the Euro Area," CESifo Working Paper Series 2112, CESifo Group Munich.
- Mark Mink & Jan P.A.M. Jacobs & Jakob de Haan, 2007. "Measuring Synchronicity And Co-Movement Of Business Cycles With An Application To The Euro Area," CAMA Working Papers 2007-19, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Harding, Don & Pagan, Adrian, 2002.
"Dissecting the cycle: a methodological investigation,"
Journal of Monetary Economics,
Elsevier, vol. 49(2), pages 365-381, March.
- Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
- Furceri, Davide & Karras, Georgios, 2006. "Are the new EU members ready for the EURO?: A comparison of costs and benefits," Journal of Policy Modeling, Elsevier, vol. 28(1), pages 25-38, January.
- Giavazzi, Francesco & Pagano, Marco, 1988.
"The advantage of tying one's hands : EMS discipline and Central Bank credibility,"
European Economic Review,
Elsevier, vol. 32(5), pages 1055-1075, June.
- Francesco Giavazzi & Marco Pagano, 1991. "The Advantage of Tying One's Hands: EMS Discipline and Central Bank Credibility," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 303-330 National Bureau of Economic Research, Inc.
- Giavazzi, Francesco & Pagano, Marco, 1986. "The Advantages of Tying One's Hands: EMS Discipline and Central Bank Credibility," CEPR Discussion Papers 135, C.E.P.R. Discussion Papers.
- Morten O. Ravn & Harald Uhlig, 2002. "On adjusting the Hodrick-Prescott filter for the frequency of observations," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 371-375.
- Máximo Camacho & Gabriel Pérez-Quirós & Lorena Saiz, 2005.
"Do european business cycles look like one?,"
Banco de Espaï¿½a Working Papers
0518, Banco de Espa�a.
- Paul de Grauwe & Francesco Paolo Mongelli, 2005.
"Endogeneities of Optimum Currency Areas: What brings Countries Sharing a Single Currency Closer together?,"
Working Papers de Economia (Economics Working Papers)
29, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
- De Grauwe, Paul & Mongelli, Francesco Paolo, 2005. "Endogeneities of optimum currency areas: what brings countries sharing a single currency closer together?," Working Paper Series 0468, European Central Bank.
- Carlo Altavilla, 2004. "Do EMU Members Share the Same Business Cycle?," Journal of Common Market Studies, Wiley Blackwell, vol. 42(5), pages 869-896, December.
- Rachel McCulloch & Blake LeBaron, 2000. "Floating, Fixed, or Super-Fixed? Dollarization Joins the Menu of Exchange-Rate Options," American Economic Review, American Economic Association, vol. 90(2), pages 32-37, May.
- Patrick Honohan & Philip R. Lane, 2003.
"Divergent inflation rates in EMU,"
CEPR & CES & MSH, vol. 18(37), pages 357-394, October.
- Philip R. Lane, & Patrick Honohan, 2003. "Divergent Inflation Rates in EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp05, IIIS.
- Philip R. Lane & Patrick Honohan, 2003. "Divergent Inflation Rates in EMU," Trinity Economics Papers 20034, Trinity College Dublin, Department of Economics.
- Frankel, Jeffrey A & Rose, Andrew K, 1998.
"The Endogeneity of the Optimum Currency Area Criteria,"
Royal Economic Society, vol. 108(449), pages 1009-25, July.
- Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
- Barro, Robert J. & Gordon, David B., 1983.
"Rules, discretion and reputation in a model of monetary policy,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 101-121.
- Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
- Honohan, Patrick & Lane, Philip R., 2000.
"Will the Euro trigger more monetary unions in Africa?,"
Policy Research Working Paper Series
2393, The World Bank.
- Honohan, P. & Lane, P.R., 2000. "Will the Euro Trigger More Monetary Unions in Africa?," Research Paper 176, World Institute for Development Economics Research.
- Rand, John & Tarp, Finn, 2002. "Business Cycles in Developing Countries: Are They Different?," World Development, Elsevier, vol. 30(12), pages 2071-2088, December.
- Jakob de Haan & Robert Inklaar & Richard Jong-A-Pin, 2008.
"Will Business Cycles In The Euro Area Converge? A Critical Survey Of Empirical Research,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 22(2), pages 234-273, 04.
- Haan, Jakob de & Inklaar, Robert & Jong-A-Pin, Richard, 2005. "Will business cycles in the Euro Area converge : a critical survey of empirical research," CCSO Working Papers 200508, University of Groningen, CCSO Centre for Economic Research.
- Gregor Irwin, 2004. "Currency boards and currency crises," Oxford Economic Papers, Oxford University Press, vol. 56(1), pages 64-87, January.
- Buigut, Steven & Valev, Neven T., 2009. "Benefits from Mutual Restraint in a Multilateral Monetary Union," World Development, Elsevier, vol. 37(3), pages 585-594, March.
- Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April.
- Harding, Don & Pagan, Adrian, 2003. "A comparison of two business cycle dating methods," Journal of Economic Dynamics and Control, Elsevier, vol. 27(9), pages 1681-1690, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.