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Choice of Monetary and Exchange Regimes in ECOWAS: An Optimum Currency Area Analysis

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Author Info

  • Chantal Dupasquier

    (UN Economic Commission for Africa)

  • Patrick N. Osakwe

    ()
    (UN Economic Commission for Africa)

  • Shandre M. Thangavelu

    (Department of Economics, National University of Singapore)

Abstract

There are plans by five West African countries to establish a second monetary zone in the sub-region by December 2009. In this paper we ask whether a monetary union is the appropriate exchange rate regime for the sub-region based on economic criteria. We address the issue using a rigorous theoretical framework that captures the crucial trade-off between the savings in transaction costs, resulting from a common currency, and the macroeconomic stabilization benefits of a flexible exchange rate regime. The main result is that a flexible exchange rate regime dominates a monetary union in the ECOWAS subregion.

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Bibliographic Info

Paper provided by National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0510.

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Date of creation: Jul 2005
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Handle: RePEc:sca:scaewp:0510

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Web page: http://www.fas.nus.edu.sg/ecs/scape/index.html
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Related research

Keywords: Exchange rates; Regimes; Welfare; Transaction costs; West Africa;

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References

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  1. Canzoneri, Matthew B & Gray, Jo Anna, 1985. "Monetary Policy Games and the Consequences of Non-cooperative Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 547-64, October.
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  5. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
  6. Marc Klau, 1998. "Exchange rate regimes and inflation and output in Sub-Saharan countries," BIS Working Papers 53, Bank for International Settlements.
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  8. Paul Masson & Catherine Pattillo, 2002. "Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(3), pages 387-412, September.
  9. 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.
  10. Kose, M. Ayhan & Riezman, Raymond, 2001. "Trade shocks and macroeconomic fluctuations in Africa," Journal of Development Economics, Elsevier, vol. 65(1), pages 55-80, June.
  11. Guillaume, Dominique M. & Stasavage, David, 2000. "Improving Policy Credibility: Is There a Case for African Monetary Unions?," World Development, Elsevier, vol. 28(8), pages 1391-1407, August.
  12. Patrick Honohan & Stephen A. O'Connell, 1997. "Contrasting Monetary Regimes in Africa," IMF Working Papers 97/64, International Monetary Fund.
  13. Honohan, P. & Lane, P.R., 2000. "Will the Euro Trigger More Monetary Unions in Africa?," Research Paper 176, World Institute for Development Economics Research.
  14. Stasavage, David, 1997. "The CFA Franc Zone and Fiscal Discipline," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(1), pages 132-67, March.
  15. Lane, Philip R, 2000. " Asymmetric Shocks and Monetary Policy in a Currency Union," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 585-604, December.
  16. Crow, J., 1999. "Any Sense in a Canadian Dollar?," Papers 99-1(a), California Davis - Institute of Governmental Affairs.
  17. Steven B. Kamin & Marc Klau, 1997. "Some multi-country evidence on the effects of real exchange rates on output," BIS Working Papers 48, Bank for International Settlements.
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Cited by:
  1. Balogun, Emmanuel Dele, 2008. "An Empirical Test of Trade Gravity Model Criteria for the West African Monetary Zone (WAMZ)," MPRA Paper 7083, University Library of Munich, Germany.
  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.

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