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Real exchange rate and asymmetric shocks in the West African Monetary Zone (WAMZ)
Adu, R. Litsios, Ioannis
Adu, R.
Litsios, Ioannis
Publication Date
2019-03
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© 2018 Elsevier B.V. All rights reserved. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license.
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openAccess
Accepted for publication
18/12/2018
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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.
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Accepted manuscript
Citation
Adu R, Litsios I and Baimbridge M (2019) Real exchange rate and asymmetric shocks in the West African Monetary Zone (WAMZ). Journal of International Financial Markets, Institutions and Money. 59: 232-249.
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Article