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Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa

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  • Xavier Debrun
  • Catherine A Pattillo
  • Paul R Masson

Abstract

This paper develops a full-fledged cost-benefit analysis of monetary integration, and applies it to the currency unions actively pursued in Africa. The benefits of monetary union come from a more credible monetary policy, while the costs derive from real shock asymmetries and fiscal disparities. The model is calibrated using African data. Simulations indicate that the proposed EAC, ECOWAS, and SADC monetary unions bring about net benefits to some potential members, but modest net gains and sometimes net losses for others. Strengthening domestic macroeconomic frameworks is shown to provide some of the same improvements as monetary integration, reducing the latter’s relative attractiveness.

Suggested Citation

  • Xavier Debrun & Catherine A Pattillo & Paul R Masson, 2010. "Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa," IMF Working Papers 10/157, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/157
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    1. Steven K. Buigut & Neven Valev, 2005. "Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis (2005)," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0504, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Fielding, David & Shields, Kalvinder, 2001. "Modelling macroeconomic shocks in the CFA Franc Zone," Journal of Development Economics, Elsevier, vol. 66(1), pages 199-223, October.
    3. Charalambos Tsangarides & Pierre Ewenczyk & Michal Hulej & Mahvash Saeed Qureshi, 2009. "Are Africa's Currency Unions Good for Trade?," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 876-918, November.
    4. Houssa, Romain, 2008. "Monetary union in West Africa and asymmetric shocks: A dynamic structural factor model approach," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 319-347, February.
    5. Tsangarides, Charalambos G. & Qureshi, Mahvash Saeed, 2008. "Monetary Union Membership in West Africa: A Cluster Analysis," World Development, Elsevier, vol. 36(7), pages 1261-1279, July.
    6. Roel Beetsma & Massimo Giuliodori, 2010. "The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 603-641, September.
    7. Mario Mansour & Michael Keen, 2009. "Revenue Mobilization in Sub-Saharan Africa; Challenges from Globalization," IMF Working Papers 09/157, International Monetary Fund.
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    Citations

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    Cited by:

    1. Laetitia Lepetit & Clovis Rugemintwari & Frank Strobel, 2015. "Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?," The World Economy, Wiley Blackwell, vol. 38(8), pages 1179-1204, August.
    2. Thomas Kigabo RUSUHUZWA & Paul Robert MASSON, 2012. "Design and Implementation of a Common Currency Area in the East African Community," Working Papers tecipa-451, University of Toronto, Department of Economics.
    3. Carlos Vieira & Isabel Vieira, 2013. "Monetary Integration In Eastern And Southern Africa: Choosing A Currency Peg For Comesa," South African Journal of Economics, Economic Society of South Africa, vol. 81(3), pages 356-372, September.
    4. 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.
    5. 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..
    6. Mulatu F. Zehirun & Marthinus C. Breitenbach & Francis Kemegue, 2014. "Monetary Integration in SADC: Assessment of Policy Coordination and Real Effective Exchange Rate Stability," Working Papers 201473, University of Pretoria, Department of Economics.
    7. Hachicha, Ahmed & Lean Hooi Hooi, 2013. "Inflation, inflation uncertainty and output in Tunisia," Economics Discussion Papers 2013-1, Kiel Institute for the World Economy (IfW).
    8. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, vol. 32(C), pages 463-482.
    9. World Bank, 2012. "Reshaping Economic Geography of East Africa : From Regional to Global Integration (Vol. 1 of 2)," World Bank Other Operational Studies 11930, The World Bank.
    10. Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.

    More about this item

    Keywords

    Africa; Central banks and their policies; Monetary integration; monetary union; monetary unions; inflation; monetary policy; International Monetary Arrangements and Institutions;

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