Persistence of Inflationary shocks: Implications for West African Monetary Union Membership

Citation

Alagidede P, Coleman S & Cuestas JC (2010) Persistence of Inflationary shocks: Implications for West African Monetary Union Membership. Stirling Economics Discussion Paper, 2010-11.

Abstract
Plans are far advanced to form a second monetary union, the West African Monetary Zone (WAMZ), in Africa. While much attention is being placed on convergence criteria and preparedness of the five aspiring member states, less attention is being placed on how the dynamics of inflation in individual countries are (dis)similar. This paper aims to stimulate debate on the long term sustainability of the union by examining the dynamics of inflation within these countries. Using Fractional Integration (FI) methods, we establish that some significant differences exist among the countries. Shocks to inflation in Sierra Leone are non mean reverting; results for The Gambia, Ghana and Guinea-Bissau suggest some inflation persistence, despite being mean reverting. Some policy implications are discussed and possible outstanding policy questions are raised.

Keywords
Inflationary shocks; fractional integration; stationarity; West Africa; Monetary unions; Monetary unions Africa, West; Africa, West Economic conditions

JEL codes

• C14: Semiparametric and Nonparametric Methods: General
• E31: Price Level; Inflation; Deflation
• E58: Central Banks and Their Policies

• SEDP-2010-11-Alagidede-Coleman-Cuestas.pdf