n African Finance Journal - Economic integration and exchange rate dynamics in the West African monetary zone
|Article Title||Economic integration and exchange rate dynamics in the West African monetary zone|
|© Publisher:||AfricaGrowth Institute|
|Journal||African Finance Journal|
|Affiliations||1 University of Witwatersrand, 2 University of Cape Coast, Ghana and 3 University of Cape Coast, Ghana|
|Publication Date||Jan 2016|
|Pages||53 - 76|
|Keyword(s)||Cointegration, Mean-reversion, Real exchange rate and Structural breaks|
We revisit the validity of long-run purchasing power parity in the West African Monetary Zone for quarterly data spanning from 1960 up to 2014. By allowing for unknown endogenous structural breaks in the data, the evidence indicates the existence of cointegration between nominal exchange rates and prices in all the countries. The results support that the PPP holds and can serve as a benchmark for exchange rate modeling in the sub-region. However, the diverse speeds of adjustment towards the equilibrium relationship suggests to exchange rate policymakers to take into account individual economic, social and political circumstances of the countries. We discuss the implications of these findings to guide policy choices in the monetary zone.
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