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Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis

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  • Asongu Simplice

    () (Yaoundé/Cameroun)

Abstract

Purpose – A spectre is hunting embryonic African monetary zones: the EMU crisis. This paper assesses real and monetary policy convergence within the proposed WAM and EAM zones. The introduction of common currencies in West and East Africa is facing stiff challenges in the timing of monetary convergence, the imperative of bankers to apply common modeling and forecasting methods of monetary policy transmission, as well as the requirements of common structural and institutional characteristics among candidate states. Design/methodology/approach – In the analysis, 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 at macro and micro levels. Findings – Findings suggest overwhelming lack of convergence: (1) initial conditions for financial development are different across countries; (2) fundamental characteristics as common monetary policy initiatives and IMF backed financial reform programs are implemented differently across countries; (3) there is remarkable evidence of cross-country variations in structural characteristics of macroeconomic performance; (4) institutional cross-country differences could also be responsible for the deficiency in convergence within the potential monetary zones. Practical implications – As a policy implication, heterogeneous structural and institutional characteristics across countries are giving rise to different levels and patterns of financial intermediary development. Thus member states should work towards harmonizing cross-country differences in structural and institutional characteristics that hamper the effectiveness of convergence in monetary and real policies. Originality/value – It is one of the few attempts to investigate the issue of convergence within the proposed WAM and EAM unions.

Suggested Citation

  • 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..
  • Handle: RePEc:agd:wpaper:12/005
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Simplice A, Asongu, 2012. "Fighting software piracy: which IPRs laws (treaties) matter in Africa?," MPRA Paper 43590, University Library of Munich, Germany.
    2. Asongu Simplice, 2011. "Democracy and Stock Market Performance in African Countries," Working Papers of the African Governance and Development Institute. 11/021, African Governance and Development Institute..
    3. Simplice A. Asongu, 2014. "Does money matter in Africa?: New empirics on long- and short-run effects of monetary policy on output and prices," Indian Growth and Development Review, Emerald Group Publishing, vol. 7(2), pages 142-180, November.
    4. Asongu, Simplice, 2014. "Real Effective Exchange Rate Imbalances and Macroeconomic Adjustments: evidence from the CEMAC zone," MPRA Paper 63154, University Library of Munich, Germany.
    5. Asongu Simplice, 2011. "Government Quality Determinants of Stock Market Performance in African Countries," Working Papers of the African Governance and Development Institute. 11/019, African Governance and Development Institute..

    More about this item

    Keywords

    Currency Area; Convergence; Policy Coordination; Africa;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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