REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union

Simplice Asongu

South African Journal of Economics, 2014, vol. 82, issue 2, 276-289

Abstract: With the spectre of the euro crisis hunting embryonic monetary unions, we use a dynamic model of a small open economy to analyse real effective exchange rate (REER) imbalances and examine whether the movements in the aggregate real exchange rates are consistent with the underlying macroeconomic fundamentals in the proposed West African Monetary Union (WAMU). Using both country-oriented and WAMU panel-based specifications, we show that the long-run behaviour of the REERs can be explained by fluctuations in the terms of trade, productivity, investment, debt and openness. While there is still significant evidence of cross-country differences in the relationship between underlying macroeconomic fundamentals and corresponding REERs, the embryonic WAMU has a stable error correction mechanism, with four of the five cointegration relations having signs that are consistent with the predictions from economic theory. Policy implications are discussed, and the conclusions of the analysis are a valuable contribution to the scholarly and policy debate over whether the creation of a sustainable monetary union should precede convergence in macroeconomic fundamentals that determine REER adjustments.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://hdl.handle.net/10.1111/saje.12039 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union (2013)
Working Paper: REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:sajeco:v:82:y:2014:i:2:p:276-289

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0038-2280

Access Statistics for this article

South African Journal of Economics is currently edited by Philip A. Black

More articles in South African Journal of Economics from Economic Society of South Africa Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().