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Real and monetary policy convergence: EMU crisis to the CFA zone

  • Simplice A. Asongu

Purpose – A major lesson of the European Monetary Union (EMU) crisis is that serious disequilibria result from regional monetary arrangements not designed to be robust to a variety of shocks. The purpose of this paper is to assess these disequilibria within the Economic and Monetary Community of Central Africa (CEMAC), West African Economic and Monetary Union (UEMOA) and Financial Community of Africa (CFA) zones. Design/methodology/approach – In the assessments, monetary policy targets inflation and financial dynamics of depth, efficiency, activity and size while real sector policy targets economic performance in terms of GDP growth. The author also provides the speed of convergence and time required to achieve a 100 percent convergence. Findings – But for financial intermediary size within the CFA zone, findings, for the most part, support only unconditional convergence. There is no form of convergence within the CEMAC zone. Practical implications – The broad insignificance of conditional convergence results has substantial policy implications. Monetary and real policies, which are often homogenous for member states, are thwarted by heterogeneous structural and institutional characteristics, which give rise to different levels and patterns of financial intermediary development. Therefore, member states should work towards harmonizing cross-country differences in structural and institutional characteristics that hamper the effectiveness of monetary policies. Originality/value – The paper provides warning signs to the CFA zone in the heat of the Euro zone crises.

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Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

Volume (Year): 5 (2013)
Issue (Month): 1 (February)
Pages: 20-38

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Handle: RePEc:eme:jfeppp:v:4:y:2012:i:4:pp:20-38
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  1. A. Bénassy-Quéré & Maylis Coupet, 2003. "On the Adequacy of Monetary Arrangements in Sub-Saharian Africa," THEMA Working Papers 2003-38, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
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  9. Simplice A. Asongu, 2012. "Law and Finance in Africa," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 55(4), pages 385-408.
  10. Bruno, Giuseppe & De Bonis, Riccardo & Silvestrini, Andrea, 2012. "Do financial systems converge? New evidence from financial assets in OECD countries," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 141-155.
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  12. Simplice A., Asongu, 2011. "New financial intermediary development indicators for developing countries," MPRA Paper 30921, University Library of Munich, Germany.
  13. Antonio Cosma & antonio.cosma@uni.lu & Michel Beine & Robert Vermeulen, 2009. "The Dark Side of Global Integration: Increasing Tail Dependence," LSF Research Working Paper Series 09-05, Luxembourg School of Finance, University of Luxembourg.
  14. Simplice A., Asongu, 2011. "Law, finance, economic growth and welfare: why does legal origin matter?," MPRA Paper 33868, University Library of Munich, Germany.
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  16. Fung, Michael K., 2009. "Financial development and economic growth: Convergence or divergence?," Journal of International Money and Finance, Elsevier, vol. 28(1), pages 56-67, February.
  17. Giuseppe Bruno & Riccardo De Bonis, 2009. "Do Financial Systems Converge?: New Evidence from Household Financial Assets in Selected OECD Countries," OECD Statistics Working Papers 2009/1, OECD Publishing.
  18. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November.
  19. Simplice A. Asongu, 2014. "Finance and Democracy in Africa," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 6(3), pages 92-116, October.
  20. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  21. Brada, Josef C. & Kutan, Ali M. & Zhou, Su, 2005. "Real and monetary convergence between the European Union's core and recent member countries: A rolling cointegration approach," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 249-270, January.
  22. Sagarika Mishra & Paresh Kumar Narayan, 2010. "Do Market Capitalisation and Stocks Traded Converge? New Global Evidence," Economics Series 2010_11, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
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