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Monetary Integration in SADC: Assessment of Policy Coordination and Real Effective Exchange Rate Stability

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  • Mulatu F. Zehirun

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.)

  • Marthinus C. Breitenbach

    (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa.)

  • Francis Kemegue

    (Farmingham State University and University of Pretoria, Pretoria 0002)

Abstract

This paper evaluates the strength of policy coordination in Southern African Development Community (SADC) as well as real effective exchange rate stability as indicative of sensible monetary integration. The underlying hypothesis goes with the assertion that countries meeting OCA conditions face more stable exchange rates. The quantitative analysis encompasses 12 SADC member states over the period 1995-2012. Correlation matrixes, dynamic pooled mean group (PMG) and mean group (MG) estimators, and real effective exchange rate (REER) equilibrium and misalignment analysis are carried out to arrive at the conclusions. The PMG model shows that there are common policy variables that influence REERs in the region. However, the REER equilibrium misalignment analysis reveals that SADC economies are characterised by persistent overvaluation at least in the short term. This calls for further improvement of policy coordination in the region. The findings in this paper have important policy implications for economic stability and policy coordination as SADC proceeds with monetary integration.

Suggested Citation

  • Mulatu F. Zehirun & Marthinus C. Breitenbach & Francis Kemegue, 2014. "Monetary Integration in SADC: Assessment of Policy Coordination and Real Effective Exchange Rate Stability," Working Papers 201473, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201473
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    More about this item

    Keywords

    Real Effective Exchange Rate; Monetary Integration; Policy Coordination; SADC;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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