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Optimality of a monetary union : New evidence from exchange rate misalignments in West Africa

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  • Issiaka Coulibaly
  • Blaise Gnimassoun

Abstract

This paper aims to study the optimality of a monetary union in West Africa by using a new methodology based on the analysis of convergence and co-movements between exchange rate misalignments. Two main advantages characterize this original framework. First, it brings together the information related to several optimum currency area criteria— such as price convergence, terms of trade shocks, and trade and fiscal policies—going further than previous studies which are mainly based on only one criterion at a given time. Second, our study detects potential competitiveness differentials which play a key role in the debate on the optimality or not of a monetary union, as evidenced by the recent crisis in the Euro area. Relying on recent panel cointegration techniques and cluster analysis, our results show that the WAEMU area has a core composed by Burkina Faso, Mali, Niger and Senegal which can be joined by Ghana, Sierra Leone and, to a lesser extent, Gambia, and that Ghana and Senegal appear to be the best reference countries for the creation of the whole West Africa monetary union.

Suggested Citation

  • Issiaka Coulibaly & Blaise Gnimassoun, 2012. "Optimality of a monetary union : New evidence from exchange rate misalignments in West Africa," EconomiX Working Papers 2012-37, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2012-37
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    Cited by:

    1. 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.
    2. Zerihun, Mulatu F. & Breitenbach, Marthinus C., 2016. "Nonlinear approaches in testing PPP: Evidence from Southern African development community," Economic Modelling, Elsevier, vol. 56(C), pages 162-167.
    3. Giscard Assoumou Ella, 2013. "The viability of an economic and monetary union in Africa with a unified currency: evidence from the African economies' reactions to the international income, price and monetary shocks," Working Papers hal-00851594, HAL.
    4. 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.
    5. Coulibaly, Issiaka & Davis, Junior, 2013. "Exchange rate regimes and economic performance: Does CFA zone membership benefit their economies?," MPRA Paper 54075, University Library of Munich, Germany.
    6. Blaise Gnimassoun, 2017. "Exchange rate misalignments and the external balance under a pegged currency system," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 949-974, November.
    7. A D Adom, 2016. "Resilience of developing countries to shocks: Case study of WAEMU countries with SUR and VAR Approaches," Economic Issues Journal Articles, Economic Issues, vol. 21(2), pages 105-138, September.
    8. Simplice Asongu & Jacinta C. Nwachukwu & Vanessa S. Tchamyou, 2017. "A summary of a survey on proposed African monetary unions," Working Papers 17/008, African Governance and Development Institute..
    9. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, vol. 35(C), pages 614-621.
    10. Issiaka Coulibaly, 2014. "Competitiveness and growth within the CFA franc zone: Does the switch to the Euro matter?," International Economics, CEPII research center, issue 139, pages 1-18.
    11. Gnimassoun, Blaise & Coulibaly, Issiaka, 2014. "Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter?," Economic Modelling, Elsevier, vol. 40(C), pages 208-226.
    12. S Coleman & J C Cuestas & E Mourelle, 2016. "Investigating the oil price-exchange rate nexus: evidence from Africa 1970-2004," Economic Issues Journal Articles, Economic Issues, vol. 21(2), pages 53-79, September.

    More about this item

    Keywords

    Exchange rate misalignment; Optimum Currency Area; West African countries;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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