Are proposed African monetary unions optimal currency areas? Real, monetary and fiscal policy convergence analysis
Simplice Asongu
African Journal of Economic and Management Studies, 2014, vol. 5, issue 1, 9-29
Abstract:
Purpose - – A spectre is hunting embryonic African monetary zones: the European Monetary Union crisis. The purpose of this paper is to assess real, monetary and fiscal policy convergence within the proposed WAM and EAM zones. The introduction of common currencies in West and East Africa is facing stiff challenges in the timing of monetary convergence, the imperative of central bankers to apply common modeling and forecasting methods of monetary policy transmission, as well as the requirements of common structural and institutional characteristics among candidate states. Design/methodology/approach - – In the analysis: monetary policy targets inflation and financial dynamics of depth, efficiency, activity and size; real sector policy targets economic performance in terms of GDP growth at macro and micro levels; while, fiscal policy targets debt-to-GDP and deficit-to-GDP ratios. A dynamic panel GMM estimation with data from different non-overlapping intervals is employed. The implied rate of convergence and the time required to achieve full (100 percent) convergence are then computed from the estimations. Findings - – Findings suggest overwhelming lack of convergence: initial conditions for financial development are different across countries; fundamental characteristics as common monetary policy initiatives and IMF-backed financial reform programs are implemented differently across countries; there is remarkable evidence of cross-country variations in structural characteristics of macroeconomic performance; institutional cross-country differences could also be responsible for the deficiency in convergence within the potential monetary zones; absence of fiscal policy convergence and no potential for eliminating idiosyncratic fiscal shocks due to business cycle incoherence. Practical implications - – As a policy implication, heterogeneous structural and institutional characteristics across countries are giving rise to different levels and patterns of financial intermediary development. Thus, member states should work towards harmonizing cross-country differences in structural and institutional characteristics that hamper the effectiveness of convergence in monetary, real and fiscal policies. This could be done by stringently monitoring the implementation of existing common initiatives and/or the adoption of new reforms programs. Originality/value - – It is one of the few attempts to investigate the issue of convergence within the proposed WAM and EAM unions.
Keywords: Africa; Convergence; Currency area; Policy coordination (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:
Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers
Related works:
Working Paper: Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis (2012) 
Working Paper: Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis (2012) 
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:eme:ajemsp:v:5:y:2014:i:1:p:9-29
DOI: 10.1108/AJEMS-02-2012-0010
Access Statistics for this article
African Journal of Economic and Management Studies is currently edited by Prof John Kuada
More articles in African Journal of Economic and Management Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().