Choice of Monetary and Exchange Regimes in ECOWAS: An Optimum Currency Area Analysis
AbstractThere 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 InfoPaper provided by National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0510.
Date of creation: Jul 2005
Date of revision:
Exchange rates; Regimes; Welfare; Transaction costs; West Africa;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-AFR-2005-07-25 (Africa)
- NEP-ALL-2005-07-25 (All new papers)
- NEP-CBA-2005-07-25 (Central Banking)
- NEP-FMK-2005-07-25 (Financial Markets)
- NEP-MAC-2005-07-25 (Macroeconomics)
- NEP-MON-2005-07-25 (Monetary Economics)
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