Affordable Access

Choice of Monetary and Exchange Regimes in ECOWAS: An Optimum Currency Area Analysis

Authors
Disciplines
  • Economics

Abstract

There are plans by five West African countries to establish a second monetary zone in the sub-region by December 2009. In this paper we ask whether a monetary union is the appropriate exchange rate regime for the sub-region based on economic criteria. We address the issue using a rigorous theoretical framework that captures the crucial trade-off between the savings in transaction costs, resulting from a common currency, and the macroeconomic stabilization benefits of a flexible exchange rate regime. The main result is that a flexible exchange rate regime dominates a monetary union in the ECOWAS subregion.

There are no comments yet on this publication. Be the first to share your thoughts.