Economics Department

 

Date of this Version

2015

Citation

Review of Development Finance 5 (2015) 53–63

Comments

© 2015 Africagrowth Institute.

http://dx.doi.org/10.1016/j.rdf.2015.05.001

Abstract

In this paper, we test whether the West African Monetary Zone (WAMZ) is a common currency area by using a structural vector autoregressive model to study the variance decomposition, impulse responses of key economic variables and linear dependence of the underlying structural shocks of the countries in the zone. The variance decomposition shows that the zone as a whole does not have common sources of shock, which is expected because of the diverse economic structures of these countries. The correlation of the structural shocks also shows that these countries respond asymmetrically to common supply, demand and monetary shocks and will therefore respond differently to a common monetary policy.It is therefore not in the interest of the individual countries to go into a monetary union now or in the near future unless the economies of these countries converge further.

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