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Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis

Author

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  • Asongu Simplice

    (Yaoundé/Cameroun)

Abstract
Purpose – A spectre is hunting embryonic African monetary zones: the EMU crisis. This paper assesses real and monetary 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 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 while real sector policy targets economic performance in terms of GDP growth at macro and micro levels. Findings – Findings suggest overwhelming lack of convergence: (1) initial conditions for financial development are different across countries; (2) fundamental characteristics as common monetary policy initiatives and IMF backed financial reform programs are implemented differently across countries; (3) there is remarkable evidence of cross-country variations in structural characteristics of macroeconomic performance; (4) institutional cross-country differences could also be responsible for the deficiency in convergence within the potential monetary zones. 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 and real policies. Originality/value – It is one of the few attempts to investigate the issue of convergence within the proposed WAM and EAM unions.

Suggested Citation

  • Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis," Working Papers of the African Governance and Development Institute. 12/005, African Governance and Development Institute..
    • Handle: RePEc:agd:wpaper:12/005
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Asongu Simplice, 2011. "Democracy and Stock Market Performance in African Countries," Working Papers of the African Governance and Development Institute. 11/021, African Governance and Development Institute..
    2. Asongu Simplice, 2013. "Does Money Matter in Africa? New Empirics on Long- and Short-run Effects of Monetary Policy on Output and Prices," Working Papers of the African Governance and Development Institute. 13/005, African Governance and Development Institute..
    3. Asongu, Simplice, 2014. "Real Effective Exchange Rate Imbalances and Macroeconomic Adjustments: evidence from the CEMAC zone," MPRA Paper 63154, University Library of Munich, Germany.
    4. Asongu Simplice, 2011. "Government Quality Determinants of Stock Market Performance in African Countries," Working Papers of the African Governance and Development Institute. 11/019, African Governance and Development Institute..
    5. Simplice A Asongu, 2013. "The ‘Knowledge Economy'-finance nexus: how do IPRs matter in SSA and MENA countries?," Economics Bulletin, AccessEcon, vol. 33(1), pages 78-94.
    6. Simplice Asongu, 2014. "African Development: Beyond Income Convergence," South African Journal of Economics, Economic Society of South Africa, vol. 82(3), pages 334-353, September.
    7. Simplice A, Asongu, 2012. "Fighting software piracy: which IPRs laws (treaties) matter in Africa?," MPRA Paper 43590, University Library of Munich, Germany.
    8. Abban, Stanley, 2020. "On the Computation and Essence of the Nominal Convergence Criteria for Africa Currency Union: ECOWAS in Perspective," MPRA Paper 100215, University Library of Munich, Germany, revised 10 May 2020.
    9. Zouri, Stéphane, 2019. "Synchronisation des chocs d'offre et de demande dans la Communauté Economique des Etats de l'Afrique de l'Ouest (CEDEAO) [Synchronization of supply and demand shocks in the Economic Community of We," MPRA Paper 95291, University Library of Munich, Germany.
    10. Simplice A. Asongu, 2014. "The “knowledge economy”–finance nexus in SSA and MENA countries," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 7(2), pages 200-213, June.

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    More about this item

    Keywords

    Currency Area; Convergence; Policy Coordination; Africa;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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