Appraisal of the preparedness of ECOWAS towards a common currency
DOI:
https://doi.org/10.22437/ppd.v6i1.5174Abstract
This study appraised the preparedness of Economic Community of West African States (ECOWAS) towards the adoption of a common currency by analysing the degree of symmetry and sizes of identified shocks across member countries. The analysis was situated within the framework of the Optimum Currency Area (OCA) theory and the structural vector autoregressive (SVAR) model was employed on secondary data from 1975 to 2015. The findings reveal that external supply shocks across ECOWAS countries are symmetric except for Sierra Leone, while demand, supply and monetary shocks among member countries are asymmetric. The absolute relative sizes of the different shocks across member countries are high and different in sizes. This implies that ECOWAS countries are not fully prepared to adopt a common currency and the fixed exchange rate as a stabilization policy for the entire West Africa. Hence ECOWAS governments should further shift the targeted date beyond 2020 to create ample time for member countries to get fully prepared.
Downloads
References
Addison, E., Opoku-Afari, M., and Kinful, E., (2005). Terms of trade and real exchange rate shocks and implications for the West African Monetary Zone, Bank of Ghana Working Paper No. 12.
Al-Turki, F. (2007). Essays on optimum currency area, PhD. Thesis, Department of Economics, University of Oregon, USA.
Bayoumi, T, and Eichengreen, B. (1994). Macroeconomic Adjustment Under Bretton Woods and the Post-Breton-Woods Float: An Impulse-Response Analysis. The Economic Journal, 104 (425), 813-827.
Baxter, M. and King, G. (1999). Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series. The Review of Economics and Statistics, MIT Press, vol. 8, No. 4, pp. 575-593.
Ben, A. (2009). Analysis of shocks affecting Europe: EMU and some Central and Eastern acceding countries. Panoeconomicus, 56(1), 21-38.
Ben-Arfa, N. (2012). Gulf Cooperation Council monetary union: Business cycle synchronization, shocks correlation. International Business and Economic Research Journal, pp. 137-166.
Blanchard, O. and Quah, D. (1989). The dynamic effects of aggregate demand and
supply disturbances. American Economic Review. 79, 655–673.
Broz, T. (2005). The Theory of Optimum Currency Areas: A Literature Review. Privredna kretanja i ekonomska politika, 104, 53.
Buigut, S. and Valev, N. (2005). Is the Proposed East African Monetary Union an Optimal Currency Area? A Structural Vector Autoregression Analysis. World Development, Vol. 33, No. 12, pp. 260-267.
Chuku, C. (2012).The Proposed Eco: Should West Africa Proceed with a Common Currency? Paper presented at the Centre for the Study of African Economies (CSAE) 2012 Conference on “Economic Development in Africa†Oxford University, Oxford 18-20.
De Grauwe, P. (1992). German Monetary Unification. European Economic Review, Vol 36, No (32-33), pp. 445-453.
De Grauwe, P. (2005). Economics of Monetary Union, 6th edition. Oxford University Press.
Darvas, Zand Szapáry, G. (2008). Business Cycle Synchronization in the Enlarged EU. Open Economies Review, vol. 19, no. 1, pp. 1-19, 2008.
Ekong, C. and Onye, K. (2012). On the Feasibility of a Common Currency in West Africa: Evidence from a Multivariate Structural VAR. Journal of Economic Theory, Vol. 4, No. 4, pp: 120-131.
Frankel, J and Rose, K. (1998). The Endogeneity of the Optimum Currency Area Criteria. The Economic Journal, 108(449), 1009-1025.
Guo, F. (2005). Essays on East Asian capital markets: Integration and implications for economic activity. Unpublished PhD thesis, City University of New York, United States - New York.
Harvey, S. and Cushing, M. (2015). Is West African Monetary Zone (WAMZ) a common currency area? Review of Development Finance, Vol. 5, No. 1, pp. 53-63.
Horvath, J. and Rátfai, A. (2004). Supply and demand shocks in accession countries to the Economic and Monetary Union. Journal of Comparative Economics, Vol. 32, No. 2, pp. 202-211.
Houssa, R. (2008). Monetary union in West Africa and asymmetric shocks: A dynamic structural factor model approach. Journal of Development Economics, Vol. 85, pp: 319-347.
Jeon, B. and Zhang, H. (2007). A currency union or an exchange rate union: Evidence from Northeast Asia. Journal of Economic Integration, Vol. 22, No. 2, pp. 256-287.
Ishiyama, Y. (1975). The Theory of Optimum Currency Areas: A Survey (La theorie des zones monetaires optimales: etude) (La teoria de las zonas monetarias optimas: Un examen). Staff Papers - International Monetary Fund, 22(2), 344-383.
Karras, G. (2006). Is Africa an Optimum Currency Area? A Comparison of Macroeconomic Costs and Benefits. Journal of African Economies, Vo.16
Kenen, P. (1969). The optimum currency area: an eclectic view, Mundell, Robert/Swoboda. Monetary Problems of the International Economy. Chicago: University of Chicago Press, pp. 41-60.
Koh, M. and Lee, G. (2010). The Economic Feasibility of an Optimum Currency Area In East Asia. Available Online. [Assessed 01 July 2016]: https://www.ecu.edu.au/-data/assets/pdf-file/0009/201033/7.2-Grace-and-Koh.pdf
Krugman, P. (1993). The hub effect: Or, threeness in interregional trade, in W. J. Ethier, E. Helpman and J. P. Neary, eds., Theory, Policy and Dynamics in International Trade, Cambridge University Press.
Ling, H. (2001). Optimum currency areas in East Asia: A structural VAR approach. ASEAN Economic Bulletin, Vol.18, No. 2, pp. 206-217.
Marinas. M, (2012). Testing the Asymmetry of Shocks with Euro Area. Theoretical and Applied Economics, Vol XIX, No. 1, pp. 5-20.
Mckinnon, R. (1963): Theory of Optimum Currency Area. American Economic Review, Vol. 53, N0.4, pp. 717-725.
Mundell, R. (1961). A Theory of Optimum Currency Areas. American Economic Review, 51, pp. 657- 665.
Ramos, R. and Suriach, J. (2004). Shocking aspects of European enlargement. Eastern European Economics, Vol. 42, No. 5, pp. 36-57.
Sato, K., Zhang, Z. and Allen, D. (2009). The suitability of a monetary union in East Asia: What does the cointegration approach tell? Journal of Mathematics and Computer in Simulation Archives, Vol. 79, Issue. 9, pp. 2927-2937.
Tang, H. (2006). An Asian Monetary Union? Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
Tavlas, G. (1993). The New Theory of Optimum Currency Areas. The World Economy Vol 16, No 6, pp 663-685.
Tsangarides, C. and Qureshi, M. (2008). Monetary union membership in West Africa: A cluster analysis. World Development, Vol 36, No 7, pp 1261-1279.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2018 Louis Sevitenyi Nkwatoh
This work is licensed under a Creative Commons Attribution 4.0 International License.
