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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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    More about this item

    Keywords

    Exchange rate misalignment; Optimum Currency Area; West African countries;
    All these keywords.

    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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