Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa
IMF Working Papers, July 1, 2010
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Bibliographic details
- Authors: Xavier Debrun, Catherine A Pattillo, Paul R Masson
- Published: July 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455201402.001
Summary
- Authors: Xavier Debrun, Catherine A Pattillo, Paul R Masson
- Date: July 1, 2010
- Series: Working Paper No. 2010/157
- Pages: 68
- Core objective: Develop a full-fledged cost-benefit analysis of monetary integration and apply it to the currency unions actively pursued in Africa.
- Central findings (summary):
- Benefits of monetary union derive from a more credible monetary policy.
- Costs derive from real shock asymmetries and fiscal disparities.
- Model calibrated using African data.
- Simulations indicate that the proposed EAC, ECOWAS, and SADC monetary unions bring about net benefits to some potential members, but modest net gains and sometimes net losses for others.
- Strengthening domestic macroeconomic frameworks is shown to provide some of the same improvements as monetary integration, reducing the latter’s relative attractiveness.
Methodology and Model
- Approach:
- Develop a cost-benefit framework for monetary integration.
- Calibrate the model using African data.
- Key conceptual elements:
- Benefit channel: increased credibility of monetary policy under union.
- Cost channels: real shock asymmetries; fiscal disparities across members.
Simulations and Results
- Regions examined: EAC, ECOWAS, SADC.
- Simulation outcomes (as reported):
- Some potential members experience net benefits from joining the proposed unions.
- Other potential members obtain modest net gains.
- Some potential members face net losses from joining.
- Comparative insight:
- Improvements in domestic macroeconomic frameworks can replicate some benefits of monetary integration, lowering the relative attractiveness of forming/joining a monetary union.
Policy Implications
- Policymakers should weigh:
- Credibility gains from a common monetary policy against potential costs from asymmetric shocks and fiscal heterogeneity.
- The role of strengthening domestic macroeconomic frameworks as an alternative or complement to monetary union.
- Implicit recommendation:
- Selective expansion of monetary unions may be optimal given heterogeneous net outcomes across potential members.
Publication and Identifiers
- DOI: https://doi.org/10.5089/9781455201402.001
- Issue: 157
- Volume: 2010
- Stock No: WPIEA2010157
- ISBN: 9781455201402
- ISSN: 1018-5941
- Subject: Banking, Currencies, Inflation, Monetary unions, Terms of trade
- Keywords: central bank, CFA franc, monetary policy, WP
Source: Xavier Debrun, Catherine A Pattillo, and Paul R Masson, "Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa", IMF Working Papers 2010, 157 (2010), July 1, 2010.