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Macroeconomic Convergence in Southern Africa: The Rand Zone Experience

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  • Martin Grandes
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    In this paper we aim to answer the following two questions: 1) has the Common Monetary Area in Southern Africa (henceforth CMA) ever been an optimal currency area (OCA)? 2) What are the costs and benefits of the CMA for its participating countries? In order to answer these questions, we carry out a two-step econometric exercise based on the theory of generalised purchasing power parity (G-PPP). The econometric evidence shows that the CMA (but also Botswana as a de facto member) form an OCA given the existence of common long-run trends in their bilateral real exchange rates. Second, we also test that in the case of the CMA and Botswana the smoothness of the operation of the common currency area — measured through the degree of relative price correlation — depends on a variety of factors. These factors signal both the advantages and disadvantages of joining a monetary union. On the one hand, the more open and more similarly diversified the economies are, the higher the benefits they ... Ce Document de travail s'efforce de répondre à deux questions : 1) la zone monétaire commune de l'Afrique australe (Common Monetary Area - CMA) a-t-elle vraiment réussi à devenir une zone monétaire optimale ? 2) quels sont les coûts et les avantages de la CMA pour les pays participants ? Nous avons effectué un exercice économétrique en deux étapes basé sur la théorie des parités de pouvoir d'achat généralisées. D'après les résultats économétriques, la CMA (avec le Botswana comme membre de facto) est effectivement une zone monétaire optimale étant donné les évolutions communes sur le long terme de leurs taux de change bilatéraux. Nous avons également mis en évidence que le bon fonctionnement de l'union monétaire — mesuré par le degré de corrélation des prix relatifs — dépend de plusieurs facteurs. Ces derniers révèlent à la fois les coûts et les avantages de l'appartenance à une union monétaire. D'un côté, plus les économies sont ouvertes et diversifiées de façon comparable, plus ...

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    Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 231.

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    Date of creation: 01 Dec 2003
    Handle: RePEc:oec:devaaa:231-en
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