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Monetary Reactions in the West African Monetary Zone: Evaluation of Homogeneity and Expected Loss of Monetary Independence

Mogaji, Dr Peter Kehinde (2016): Monetary Reactions in the West African Monetary Zone: Evaluation of Homogeneity and Expected Loss of Monetary Independence.

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Abstract

The focus of this paper is to assess monetary reactions across the WAMZ, determine if these monetary reactions are closely similar across the proposed monetary zone and evaluate the degree of monetary independence loss by five member countries of the WAMZ in the event of monetary integration. This paper models the monetary policies of the WAMZ member countries in line with the hybrid McCallum-Taylor Rule (HMTR) which is a modification of the popular Taylor Rule. This HMTR reaction function expresses the money supply growth rate as a function of the output gap growth and inflation gap growth. Data employed in the study cover the period 1980 to 2014. The monetary reaction homogeneity assessments have evidence to suggest that a single monetary policy may not be suitable for the future monetary integration of the monetary Zone. Evidence from the evaluation of the extent of expected loss of monetary independence by the WAMZ countries indicate that the degree of loss of monetary independence would be high in The Gambia and Liberia, the extent of this loss would be low in the cases of Ghana and Sierra Leone.

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