Balogun, Emmanuel Dele (2007): Monetary policy and economic performance of West African Monetary Zone Countries.
Preview |
PDF
MPRA_paper_4308.pdf Download (159kB) | Preview |
Abstract
This study examined the monetary and macroeconomic stability perspective for entering into monetary union, using data available on WAMZ countries. It tests the hypothesis that independent monetary and exchange rate policies have been relatively ineffective in influencing domestic activities (especially GDP and inflation), and that when they do, they are counter productive. Usiing econometric methods, regression result show that, erstwhile domestic monetary policy, as captured by money supply and credit to government hurt real domestic output of these countries. Indeed, rather than promote growth, it was a source of stagnation. It also confirms that there appear to be a two quarters lag in monetary policy transmission effect with regard to real sector output. The results also show that although expansion in domestic output dampened aggregate consumer prices (inflation), it was however, not adequate enough to dampen the fuelling effects of past inflation. This was accentuated by money supply variable (MS2) and aggravated by exchange rate variable which are mostly positive, confirming the a priori expectations that rapid monetary expansion and devaluations fuels domestic inflation. A country by country comparison of the single and simultaneous equations model results show that expansionary monetary policy contributed more to fuelling prices than it did to growth. It also shows that interest rates policy had adverse effects on GDP by exhibiting a positive sign contrary to the theoretical expectation of an inverse relationship. The results also show that exchange rate devaluations manifest mainly in domestic inflation and have no effect at all on the growth variable, in the short term. The study concludes that these countries would be better-off to surrender its independence over these policy instruments to the planned regional body under appropriate monetary union arrangements.
Item Type: | MPRA Paper |
---|---|
Institution: | University of Lagos, Nigeria, Department of Economics |
Original Title: | Monetary policy and economic performance of West African Monetary Zone Countries |
Language: | English |
Keywords: | International Monetary Economics; Econometric studies |
Subjects: | E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission |
Item ID: | 4308 |
Depositing User: | Emmanuel Dele Balogun |
Date Deposited: | 31 Jul 2007 |
Last Modified: | 29 Sep 2019 00:31 |
References: | Appleyard, D. R. and A. J. Field, JR. 1998. International Economics. © Irwin/McGraw-Hill Boston. Backus, D., Kehoe, P. and Kydland, F. (1992), “International Real Business Cycles”, Journal of Political Economy 100, pp745-775. Bloem, Adriaan M., Robert J. Dippelsman, and Nils O. Maehle, (2001), Quarterly National Accounts Manual: Concepts, Data Sources, and Compilation. © International Monetary Fund, Washington, DC. Boltho A. (1990), “Why has Europe not Co-Ordinated its Fiscal Policies?” International Review of Applied Economics, Vol. 4(2), June, p. 166-181. Buigut, S. K. and N. T. Valev (2004), “Is the Proposed East African Monetary Union an Optimal Currency Area? A Structural Vector Autoregression Analysis”, Working Paper 04-07 Andrew Young School of Policy Studies, Georgia State University. Buiter, W.H.C., C. Corsetti, and P. A. Pesenti (1995). “A centre-periphery model of monetary coordination and exchange rate crises. National Bureau of Economic Research Working paper No. 5140. Canzoneri, M., and D. Henderson (1985) “Monetary Policy Games and the Consequences of Non-Cooperative behaviour” International Economic Review, 26 pp. 547-64. Cobham, D. and P. Robson. 1992. “Monetary integration in Africa: A deliberately European perspective”. In B. Eichengreen, ed., “European Monetary Unification”. Journal of Economic Literature, 31: 1321–57. Cohen, D. (1993), “Beyond EMU: The Problem of Sustainability”, Economic and Politics, 5, pp. 187-202. Cohen, D., and Charles Wyplosz, (1989), “The European Monetary Union: An Agnostic Evaluation”, CEPR Discussion Paper, No. 306. Coleman, Andrew (2001) “Three Perspective of Australasian Monetary Union”. New Zealand Treasury Working Paper, available at their website De Bandt, O., and Francesco Paolo Mongelli (May 2000), “Convergence of Fiscal Policies in the Euro Area”, ECB Working Paper No. 20. De Grauwe, Paul (1996), “International Money, Post-war Trends and Theories”, Oxford University Press, Second Edition, March.. De Grauwe, Paul, (1990a), "Fiscal Discipline in Monetary Unions", International Economics Research Papers, No. 71. Katholieke Universiteit Leuven. De Grauwe, Paul, (1990b) “The Cost of Disinflation and the European Monetary System,” Open Economies Review, vol. 1 pp. 147-73. De Grauwe, Paul, (1993), “Is Europe an Optimum Currency Area? Evidence from Regional Data”, in Masson, P. and Taylor, M. (eds.), Policy Issues in the Operation of Currency Unions, Cambridge University Press, New York. De Grauwe, Paul, (1994), The Economics of Monetary Integration. Oxford University Press, Oxford. De Grauwe, Paul, (2000),“Economics of Monetary Union”, Oxford University Press, Fourth Edition. De Grauwe, Paul, (May 1991a), "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Paper, No. 555. London: Centre for Economic Policy Research. Devarajan, S. and J. de Melo. 1986. “Evaluating participation in African monetary unions: A statistical analysis of the CFA Zones”. World Development, 15(4): 483–96. Devarajan, S. and J. de Melo. 1990. “Membership in the CFA Zone: Odyssean journey or Trojan horse?” World Bank Working Paper Series No. 482. Duspaquier, C., Osakwe, P. N. and S.M. Thangavelu (2005). “Choice of Monetary and Exchange Rate Regimes in ECOWAS: An Optimum Currency Area Analysis” Singapore Centre for Applied and Policy Economics (SCAPE) Working Paper Series, Paper No. 2005/10 Eichengreen, Barry, European Monetary Unification: Theory, Practice, and Analysis, The MIT Press, Cambridge Mass., 1997. Emerson, M., D. Gros, A. Italianer, J. Pisani-Ferry and H. Reichenbach. 1992. One Market, One Money: An Evaluation of the Potential Benefits and Costs of Forming an Economic and Monetary Union. Oxford: Oxford University Press. Engle, R. and G. J. Lee (1999). "A Permanent and Transitory Component Model of Stock Return Volatility," in R. Engle and H. White, eds., Cointegration, Causality, and Forecasting: A Festschrift in Honor of Clive W. J. Granger, Oxford University Press, 475-497. Engle, Robert F. (1984). "Wald, Likelihood Ratio, and Lagrange Multiplier Tests in Econometrics," Chapter 13 in Z. Griliches and M. D. Intriligator (eds.), Handbook of Econometrics, Volume 2, North-Holland. Engle, Robert F. and C. W. J. Granger (1987). "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, 55, 251-276. Fidrmuc Jarko (2001) “The Endogeneity of Optimum Currency Area Criteria, Intraindustry Trade and EMU Enlargement,” Bank of Finland Institute for Economies in Transition, Discussion Paper No. 8 Forni, M., and L. Reichlin (1997), “National Policies and Local Economies: Europe and the United States”, CEPR Discussion Paper, No. 1632. Frankel, J. A., and Andrew K. Rose (2000), “An Estimate of the Effects of Currency Unions on Trade and Growth”, Rose’s web site. First Draft May 1; revised June 10, 2000. Frankel, J. A., and Andrew K. Rose (2001),, “The Endogeneity of the Optimum Currency Area Criteria”, Centre for Economic Policy Research, Discussion Paper Series No. 1473. Frankel, Jeffrey, “No single Currency Regime is Right for all Countries or at All Times”, Princeton Essays in International Finance, No. 215, August 1999. Frankel, Jeffrey, and Andrew Rose, “The Endogenity of the Optimum Currency Area Criterion”, Economic Journal, 108, July 1998. Pp. 1009-1025. Friedman M. (1953), Essays in Positive Economics, University of Chicago Press. Guilaumont, P., Guilaumont, S., and Plane, P. (1988). “Participating in African monetary unions: an alternative evaluation, World Development, 16:569-76. Guillaume, D.M., and D. Stasavage (2000) “Improving policy credibility: Is there a case for African Monetary Union” World Development, 28, pp. 1391-1407 Gujarati, Damodar N. (1995). Basic Econometrics, 3rd Edition, McGraw-Hill. Hamilton, James D. (1994a). Time Series Analysis, Princeton University Press. Hargreaves, David and John McDermott (2001) “Issues relating to Optimal Currency Areas: Theory and Implications for New Zealand”. Reserve Bank of New Zealand: Bulletin vol. 62 no. 3. Issing, O. (1996), “Europe: Political Union Through Common Money?” The Institute of Economic Affairs. Issing, O. (2000), “Europe: common money – political union?” IEA Economic Affairs, March 2000. Johansen, Søren (1991). "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, 59, 1551-1580. Johansen, Søren (1995). Likelihood-based Inference in Cointegrated Vector Autoregressive Models, Oxford University Press. Johansen, Søren and Katarina Juselius (1990). "Maximum Likelihood Estimation and Inferences on Cointegration-with applications to the demand for money," Oxford Bulletin of Economics and Statistics, 52, 169-210. Johnson, Norman L. and Samuel Kotz (1969). Discrete Distributions, Houghton Mifflin. Johnson, Norman L. and Samuel Kotz (1970). Continuous Univariate Distributions 1 & 2, Houghton Mifflin. Johnston, Jack and John Enrico DiNardo (1997). Econometric Methods , 4th Edition, McGraw-Hill. Kalemli-Ozcan, S., Sørensen, B. E. and Yosha, O. (2001), “Economic Integration, Industrial Specialization, and the Asymmetry of Macroeconomic Fluctuations,” Journal of International Economics (October). Kenen, Peter, “The Theory of Optimum Currency Areas: An Eclectic View” in R. Mundell and A. Swoboda eds, Monetary Problems of the International Economy, The University of Chicago Press, Chicago, 1969. Pp. 41-60. Lucas, Robert E., Jr., 1976, “Econometric Policy Evaluation: A Critique,” Journal of Monetary Economics, Vol. 1, No. 2, pp. 19–46. Lane, P. R. (2000) “Asymetric shocks and monetary policy in the currency union” Scandinavian Journal of Economics, 102 pp. 585-604 Masson, P., and C. Pattillo (2001). Monetary Union in West Africa: An Agency of restraint for fiscal policy? IMF Working Paper No. 01/34. Masson, P., and C. Pattillo (2004) “A Single Currency for Africa”. Finance & Development , December 2004. McKinnon, Ronald I. (1996) “The Rules of the Game: International Money and Exchange Rates, MIT Press, Cambridge 1996. McKinnon, Ronald I. (2001) ”Optimum Currency Areas and the European Experience”. http://www.stanford.edu/~mckinnon/ McKinnon, Ronald I., Optimum Currency Areas”, American Economic Review, Vol 53, September 1963, pp. 717-724. Mongelli, Francesco Paolo (2002); ““New” Views on the Optimum Currency Area Theory: What is EMU Telling US?”. Rivista di Politica Economica, Vol. 4. Mundell, Robert A ., “A Theory of Optimum Currency Areas”, American Economic Review, 51, Nov. 1961, pp. 509-17. Mundell, Robert A. (1963), “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates”, Canadian Journal of Economics and Political Science, 29, Nov. 1963, pp. 475-485 Mundell, Robert A. (1973), “Uncommon Arguments for Common Currencies”, in H.G. Johnson and A.K. Swoboda, The Economics of Common Currencies, Allen and Unwin, 1973. pp.114-32. Obaseki, P. J., (2005), “The Future of the West African Monetary Zone (WAMZ) Programme”. West African Journal of Monetary and Economic Integration, Vol. 5(2):pp. 2-46. Obstfeld M., and Kenneth Rogoff (2000), “Do We Really Need a New International Monetary Compact”, NBER, Working Paper Series no. 7864, August. Obstfeld, M. (1994), “International capital mobility in the 1990s”, CEPR discussion paper no. 902. Ojo, M. O. (2005), “Towards a Common Currency in West Africa: Progress, Lessons and Prospects”. West African Journal of Monetary and Economic Integration, Vol. 5(2):pp.47-79. Peersman, G. and F. Smets (2001), "The monetary transmission mechanism in the euro area: more evidence from VAR analysis", mimeo, ECB. Regional Data” in P.R. Masson and M. P. Taylor (eds.), Policy Issues in the Operation of Currency Unions. Cambridge: Cambridge University Press, pp. 111-130. Sagbamah, J. E. L. (2005), “Perspectives on the European Monetary Union: Lessons for the Economic Community of West African States (ECOWAS)”. West African Journal of Monetary and Economic Integration, Vol. 5(2):pp. 80-112. Tavlas, G. S. (1993), “The ‘New’ Theory of Optimum Currency Areas”, The World Economy, pp 663-685. Tavlas, G. S., (1994), “The Theory of Monetary Integration,” Open Economies Review, Vol. 5 no. 2, pp 211-230. Xavier Debrun, Paul Masson and Catherine Pattillo (2003), “West African Currency Unions: Rationale and Sustainability”, CESifo Economic Studies, Vol. 49, 3/2003, 381– 413 |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/4308 |