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REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union

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  • Asongu, Simplice A

Abstract

With the spectre of the Euro crisis hunting embryonic monetary unions, we use a dynamic model of a small open economy to analyze REERs imbalances and examine whether the movements in the aggregate real exchange rates are consistent with the underlying macroeconomic fundamentals in the proposed West African Monetary Union (WAMU). Using both country-oriented and WAMU panel-based specifications, we show that the long-run behavior of the REERs can be explained by fluctuations in the terms of trade, productivity, investment, debt and openness. While there is still significant evidence of cross-country differences in the relationship between underlying macroeconomic fundamentals and corresponding REERs, the embryonic WAMU has a stable error correction mechanism with four of the five cointegration relations having signs that are consistent with the predictions from economic theory. Policy implications are discussed and the conclusions of the analysis are a valuable contribution to the scholarly and policy debate over whether the creation of a sustainable monetary union should precede convergence in macroeconomic fundamentals that determine REER adjustments.

Suggested Citation

  • Asongu, Simplice A, 2013. "REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union," MPRA Paper 52211, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:52211
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    References listed on IDEAS

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    Cited by:

    1. Simplice Asongu, 2014. "How Would Monetary Policy Matter In The Proposed African Monetary Unions? Evidence From Output And Prices," The African Finance Journal, Africagrowth Institute, vol. 16(2), pages 34-63.
    2. Asongu, Simplice & Nwachukwu, Jacinta & Tchamyou, Vanessa, 2017. "A summary of a survey on proposed African monetary unions," MPRA Paper 79637, University Library of Munich, Germany.
    3. Simplice A Asongu, 2013. "A Short-run Schumpeterian Trip to Embryonic African Monetary Zones," Economics Bulletin, AccessEcon, vol. 33(1), pages 859-873.
    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.

    More about this item

    Keywords

    Exchange rate; Macroeconomic impact; Proposed WAMU;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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