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|Title: ||A Panel Cointegration Analysis of Currency Convertibility and Monetary Integration in the Economic Community of West African States|
|Authors: ||Chiawa, Moses Abanyam|
|Keywords: ||Panel, Cointegration Analysis, Currency Convertibility, Monatary Integration,|
Economic community of West African States.
|Issue Date: ||6-Jun-2014|
|Abstract: ||This study examines the convertibility of currencies in the West African sub-region through the analysis of their real exchange rates using the behavioural equilibrium exchange rate of Clark and MacDonald (1999). The econometrics tools used in the analysis are the panel cointegrated methods. These methods are employed to test these real exchange rates and their fundamentals for unit root and cointegration, and also examine the misalignments in these exchange rates. The study makes significant contributions in the literature especially in the area of panel cointegration where a model, moving sum of residuals (MOSUM) is formulated and applied to test for the null hypothesis of cointegration between the exchange rates and their fundamental. Most previous studies on panel cointegration concentrate on testing for the null hypothesis of no cointegration, In addition, simulation and bootstrap analysis of some of the test statistics are carried out to obtain the critical values for these test statistics. A model is also formulated to test for convergence in real exchange rates towards their equilibrium values. This test is superior to the existing tests in the literature which choose a benchmark country's currency and align all other currencies to the benchmark values. An equilibrium value of each currency is obtained and the deviations from this value are used to test for convergence. The results obtained using selected members of the ECOW AS' quarterly data from 1980-2006 suggest that all the variables are cointegrated in panel, cross-section and time series setting. Each variable has an impact on these real exchange rates, with openness and price having the greatest influence. The overall finding of the study is that the countries selected in our sample are homogeneous enough to form a monetary union. This conclusion is based on our empirical findings, since the misalignments are within the band of 1% to + 1% and the speed of convergence is homogenous lending support this conclusion.|
|Appears in Collections:||Mathematics / Computer Science|
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