Real exchange rate and asymmetric shocks in the West African Monetary Zone (WAMZ)

Raymond Adu, Ioannis Litsios, Mark Baimbridge

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Abstract

This paper examines real effective exchange rate (REER) responses to shocks in exchange rate determinants for the West African Monetary Zone (WAMZ) over the period 1980–2015. The analysis is based on a country-by-country VECM, and oil price, supply and demand shocks are identified using long run restrictions in a structural VAR model. We report significant differences in the response of REER to real oil price, productivity (supply) and demand preference shocks across these economies. In addition the relative contribution of these shocks to REER movements in the short and long run appears to be different across economies. Our findings suggest that the WAMZ countries are structurally different and asymmetric shocks with inadequate adjustment mechanisms imply that a monetary union would be costly.
Original languageEnglish
Pages (from-to)232-249
Number of pages18
JournalJournal of International Financial Markets, Institutions and Money
Volume59
Early online date20 Dec 2018
DOIs
Publication statusPublished - Mar 2019

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in Journal of International Financial Markets, Institutions and Money. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Financial Markets, Institutions and Money, [59], (2019) DOI: 10.1016/j.intfin.2018.12.005

Keywords

  • Asymmetric macroeconomic shocks
  • Currency union
  • Real effective exchange rate
  • West African Monetary Zone

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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