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Choice of Monetary and Exchange Regimes in ECOWAS: An Optimum Currency Area Analysis

  • Chantal Dupasquier

    (UN Economic Commission for Africa)

  • Patrick N. Osakwe

    ()

    (UN Economic Commission for Africa)

  • Shandre M. Thangavelu

    (Department of Economics, National University of Singapore)

There are plans by five West African countries to establish a second monetary zone in the sub-region by December 2009. In this paper we ask whether a monetary union is the appropriate exchange rate regime for the sub-region based on economic criteria. We address the issue using a rigorous theoretical framework that captures the crucial trade-off between the savings in transaction costs, resulting from a common currency, and the macroeconomic stabilization benefits of a flexible exchange rate regime. The main result is that a flexible exchange rate regime dominates a monetary union in the ECOWAS subregion.

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File URL: http://www.fas.nus.edu.sg/ecs/pub/wp-scape/0510.pdf
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Paper provided by National University of Singapore, Department of Economics, SCAPE in its series SCAPE Policy Research Working Paper Series with number 0510.

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Date of creation: Jul 2005
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Handle: RePEc:sca:scaewp:0510
Contact details of provider: Web page: http://www.fas.nus.edu.sg/ecs/scape/index.html
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  1. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
  2. Lane, Philip R, 2000. " Asymmetric Shocks and Monetary Policy in a Currency Union," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 585-604, December.
  3. Devarajan, Shantayanan & Rodrik, Dani, 1991. "Do the benefits of fixed exchange rates outweigh their costs? The Franc Zone in Africa," Policy Research Working Paper Series 777, The World Bank.
  4. Willem H. Buiter & Giancarlo Corsetti & Paolo A. Pesenti, 1995. "A Center-Periphery Model of Monetary Coordination and Exchange Rate Crises," NBER Working Papers 5140, National Bureau of Economic Research, Inc.
  5. Honohan, Patrick & Lane, Philip R., 2000. "Will the Euro trigger more monetary unions in Africa?," Policy Research Working Paper Series 2393, The World Bank.
  6. Catherine A. Pattillo & Paul R. Masson, 2001. "Monetary Union in West Africa; An Agency of Restraint for Fiscal Policies," IMF Working Papers 01/34, International Monetary Fund.
  7. Steven B. Kamin & Marc Klau, 1997. "Some multi-country evidence on the effects of real exchange rates on output," BIS Working Papers 48, Bank for International Settlements.
  8. Patrick Honohan & Stephen A. O'Connell, 1997. "Contrasting Monetary Regimes in Africa," IMF Working Papers 97/64, International Monetary Fund.
  9. M. Ayhan Kose & Raymond Riezman, 1999. "Trade Shocks and Macroeconomic Fluctuations in Africa," CSGR Working papers series 43/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  10. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
  11. Osakwe, Patrick N. & Schembri, Lawrence L., 2002. "Real effects of collapsing exchange rate regimes: an application to Mexico," Journal of International Economics, Elsevier, vol. 57(2), pages 299-325, August.
  12. Marc Klau, 1998. "Exchange rate regimes and inflation and output in Sub-Saharan countries," BIS Working Papers 53, Bank for International Settlements.
  13. repec:fth:caldav:99-1(a is not listed on IDEAS
  14. Guillaume, Dominique M. & Stasavage, David, 2000. "Improving Policy Credibility: Is There a Case for African Monetary Unions?," World Development, Elsevier, vol. 28(8), pages 1391-1407, August.
  15. Canzoneri, Matthew B & Gray, Jo Anna, 1985. "Monetary Policy Games and the Consequences of Non-cooperative Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 547-64, October.
  16. Crow, J., 1999. "Any Sense in a Canadian Dollar?," Papers 99-1(a), California Davis - Institute of Governmental Affairs.
  17. Stasavage, David, 1997. "The CFA Franc Zone and Fiscal Discipline," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(1), pages 132-67, March.
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