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Closer monetary union and product market integration in emerging economies: Evidence from the Common Monetary Area in Southern Africa

Mamello A. Nchake, Lawrence Edwards () and Neil Rankin ()

International Review of Economics & Finance, 2018, vol. 54, issue C, 154-164

Abstract: This study utilizes detailed micro price data to estimate the impact of closer monetary union on the integration of product markets across countries, considering two policy shocks from Botswana. Using the difference-in-difference approach, the results reveal that the adoption by Botswana of a crawling peg exchange policy reduced price differences between South Africa and Botswana by 4 percentage points. Subsequent changes in the Botswana monetary policy regime further reduced price gaps by 2 percentage points. These results provide support for the effectiveness of alignment in interest rate and exchange rate policies in enhancing the integration of product markets between countries.

Keywords: Botswana; Exchange rate; Monetary union; Product market integration (search for similar items in EconPapers)
JEL-codes: F10 F13 F14 F15 F42 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.iref.2017.08.004

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