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Inflationary shocks and common economic trends: Implications for West African monetary union membership

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  • Alagidede, Paul
  • Coleman, Simeon
  • Cuestas, Juan Carlos

Abstract

This paper examines the inflation dynamics and common trends in the real gross domestic product (GDP) in the candidate countries of the embryonic West African Monetary Zone (WAMZ). Using fractional integration and cointegration methods, we establish that significant heterogeneity in behavior exists among the countries. Shocks to inflation in Sierra Leone are not mean-reverting; results for the Gambia and Ghana suggest some inflation persistence, despite being mean-reverting. Further, the cointegration results indicate the presence of only one common trend. With much attention currently being placed on convergence criteria and preparedness of the aspiring member states, less attention has been given to the extent to which the dynamics of inflation and economic trends in the individual countries are (dis)similar. We discuss some policy implications and highlight political implications.

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  • Alagidede, Paul & Coleman, Simeon & Cuestas, Juan Carlos, 2012. "Inflationary shocks and common economic trends: Implications for West African monetary union membership," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 460-475.
  • Handle: RePEc:eee:jpolmo:v:34:y:2012:i:3:p:460-475
    DOI: 10.1016/j.jpolmod.2011.10.001
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    2. Simplice A. Asongu, 2015. "Growth and Institutions in African Development by Augustin K. Fosu," Research Africa Network Working Papers 15/033, Research Africa Network (RAN).
    3. 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.
    4. Samba Diop & Simplice A. Asongu, 2020. "An Index of African Monetary Integration (IAMI)," Working Papers 20/003, European Xtramile Centre of African Studies (EXCAS).
    5. Simplice A Asongu, 2013. "A Short-run Schumpeterian Trip to Embryonic African Monetary Zones," Economics Bulletin, AccessEcon, vol. 33(1), pages 859-873.
    6. Simplice Asongu & Jacinta Nwachukwu & Vanessa Tchamyou, 2017. "A Literature Survey On Proposed African Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 878-902, July.
    7. Simplice Asongu, 2014. "How Would Monetary Policy Matter In The Proposed African Monetary Unions? Evidence From Output And Prices," The African Finance Journal, Africagrowth Institute, vol. 16(2), pages 34-63.
    8. Chee-Heong Quah, 2016. "A Diagnostic on the West African Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 84(1), pages 129-148, March.
    9. Simplice Asongu, 2016. "New empirics of monetary policy dynamics: evidence from the CFA franc zones," African Journal of Economic and Management Studies, Emerald Group Publishing, vol. 7(2), pages 164-204, June.
    10. Asongu, Simplice & Nwachukwu, Jacinta & Tchamyou, Vanessa, 2017. "A summary of a survey on proposed African monetary unions," MPRA Paper 79637, University Library of Munich, Germany.
    11. Simplice Asongu, 2014. "REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 82(2), pages 276-289, June.
    12. Chuku, Chuku, 2012. "The proposed eco: should West Africa proceed with a common currency?," MPRA Paper 43739, University Library of Munich, Germany.
    13. Mogaji, Peter Kehinde, 2016. "Inflation Deviations Assessments of OCA Properties in the WAMZ," MPRA Paper 98825, University Library of Munich, Germany.
    14. Mogaji, Peter Kehinde, 2016. "Monetary Integration Tests for the OCA’s Business Cycles Synchronicity Criteria in the WAMZ," MPRA Paper 99066, University Library of Munich, Germany.
    15. Mustapha Ibn Boamah, 2013. "Exchange Rate Pass-through in Countries of the Proposed West African Monetary Zone (WAMZ)," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 74-82, February.
    16. Daniel Simons & Rosmy Jean Louis, 2018. "Monetary union in West Africa and business cycles synchronicity: New evidence," The World Economy, Wiley Blackwell, vol. 41(10), pages 2828-2848, October.
    17. Asongu, Simplice, 2015. "Financial development in Africa - a critical examination," MPRA Paper 82131, University Library of Munich, Germany.
    18. Juan Carlos Cuestas & Carlyn Ramlogan-Dobson, 2013. "Convergence of Inflationary Shocks: Evidence from the Caribbean," The World Economy, Wiley Blackwell, vol. 36(9), pages 1229-1243, September.
    19. Paul Alagidede & George Tweneboah, 2015. "On the Sustainability and Synchronization of Fiscal Policy in Latin America," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 52(2), pages 213-240, November.
    20. Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis," Working Papers of the African Governance and Development Institute. 12/005, African Governance and Development Institute..

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    More about this item

    Keywords

    Inflationary shocks; Fractional integration; Stationarity; West Africa; Monetary unions;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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