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Monetary Integration in SADC: Assessment of Policy Coordination and Real Effective Exchange Rate Stability

Mulatu F. Zerihun, Marthinus C. Breitenbach and Francis Kemegue
Authors registered in the RePEc Author Service: Marthinus Christoffel Breitenbach () and Mulatu Fekadu Zerihun ()

No 479, Working Papers from Economic Research Southern Africa

Abstract: This paper evaluates the strength of policy coordination in Southern African Development Community (SADC) as well as real effective exchange rate stability as indicative of sensible monetary integration. The underlying hypothesis goes with the assertion that countries meeting OCA conditions face more stable exchange rates. The quantitative analysis encompasses 12 SADC member states over the period 1995-2012. Correlation matrixes, dynamic pooled mean group (PMG) and mean group (MG) estimators, and real effective exchange rate (REER) equilibrium and misalignment analysis are carried out to arrive at the conclusions. The PMG model shows that there are common policy variables that influence REERs in the region. However, the REER equilibrium misalignment analysis reveals that SADC economies are characterised by persistent overvaluation at least in the short term. This calls for further improvement of policy coordination in the region. The findings in this paper have important policy implications for economic stability and policy coordination as SADC proceeds with monetary integration.

Keywords: Real Effective Exchange Rate; Monetary Integration; Policy Coordination; SADC (search for similar items in EconPapers)
JEL-codes: C23 E63 F15 F31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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