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: SCAPE

Macroeconomics Working Papers from East Asian Bureau of Economic Research

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 sub-region.

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)
Date: 2005-01
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Citations: View citations in EconPapers (4)

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