Real exchange rate and asymmetric shocks in the West African Monetary Zone (WAMZ)

Raymond Adu, Ioannis Litsios and Mark Baimbridge

Journal of International Financial Markets, Institutions and Money, 2019, vol. 59, issue C, 232-249

Abstract: This paper examines real effective exchange rate (REER) responses to shocks in exchange rate determinants for the West African Monetary Zone (WAMZ) over the period 1980–2015. The analysis is based on a country-by-country VECM, and oil price, supply and demand shocks are identified using long run restrictions in a structural VAR model. We report significant differences in the response of REER to real oil price, productivity (supply) and demand preference shocks across these economies. In addition the relative contribution of these shocks to REER movements in the short and long run appears to be different across economies. Our findings suggest that the WAMZ countries are structurally different, and asymmetric shocks with inadequate adjustment mechanisms imply that a monetary union would be costly.

Keywords: Real effective exchange rate; Asymmetric macroeconomic shocks; West African Monetary Zone; Currency union (search for similar items in EconPapers)
JEL-codes: E32 E63 F31 F33 F45 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:59:y:2019:i:c:p:232-249

DOI: 10.1016/j.intfin.2018.12.005

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