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A Monetary Stress Indicator for the Economic Community of West African States

Author

Listed:
  • Samba Diop

    (University of Saint-Louis (Senegal))

  • Peter Tillmann

    (Justus-Liebig-University Giessen)

  • Peter Winker

    (Justus-Liebig-University Giessen and Center for international Development and Environmental Research (ZEU))

Abstract

This paper uses monetary stress indicators derived from a simple backward-looking Taylor rule to investigate macroeconomic convergence in the future monetary union of ECOWAS. The results we obtain support the notion of two distinct groups of countries (WAEMU and NONWAEMU countries). We find a drastic reduction of monetary stress since the establishment of the convergence pact. The decomposition of monetary stress shows a decrease of stress due to diverging inflation rates since 1999 while notable asymmetries from cyclical output continue to persist across the ECOWAS member states. Monetary policy could be too accommodative for NON-WAEMU countries while it could be too tight for WAEMU countries implying that the future central bank target rate will not be consistent with the needs of every country member.

Suggested Citation

  • Samba Diop & Peter Tillmann & Peter Winker, 2017. "A Monetary Stress Indicator for the Economic Community of West African States," Journal of African Development, African Finance and Economic Association (AFEA), vol. 19(2), pages 1-18.
    • Handle: RePEc:afe:journl:v:19:y:2017:i:2:p:1-18
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    References listed on IDEAS

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    Cited by:

    1. Asongu, Simplice A. & Folarin, Oludele E. & Biekpe, Nicholas, 2019. "The long run stability of money demand in the proposed West African monetary union," Research in International Business and Finance, Elsevier, vol. 48(C), pages 483-495.

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    More about this item

    Keywords

    Africa; ECOWAS; macroeconomic convergence; monetary stress indicator; monetary union; Taylor rule;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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