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

Chantal Dupasquier, Patrick N. Osakwe and Shandre M. Thangavelu
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Chantal Dupasquier: UN Economic Commission for Africa
Shandre M. Thangavelu: Department of Economics, National University of Singapore

SCAPE Policy Research Working Paper Series from National University of Singapore, Department of Economics, SCAPE

Abstract: 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.

Keywords: Exchange rates; Regimes; Welfare; Transaction costs; West Africa (search for similar items in EconPapers)
JEL-codes: E52 F33 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-cba, nep-fmk, nep-ifn, nep-mac and nep-mon
Date: 2005-07
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