Volume 8, Issue 2, June 2019, Page: 62-72
Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States
Louis Sevitenyi Nkwatoh, Economics Department, Yobe State University, Damturru, Nigeria
Received: Mar. 7, 2019;       Accepted: Apr. 22, 2019;       Published: Jul. 8, 2019
DOI: 10.11648/j.eco.20190802.14      View  85      Downloads  21
Abstract
This study analyzed the degree of business cycles’ synchronization of ECOWAS economies in order to ascertain whether the formation of a broader monetary union in 2020 will be beneficial to the entire region. Annual real GDP growth rate from 1975 to 2015 was de-trended using the Hodrick-Prescott filter (HP) filter to obtain two components- permanent and transitory components. Lastly, cross country correlations of the different components were used to analyze the business cycles of ECOWAS economies. Result from the transitory component shows that the business cycles of WAEMU sub-economies are similar. But on a general note, the correlation coefficients of both components show that the business cycles of ECOWAS economies differ significantly, suggesting that, a broader monetary union involving both WAEMU and WAMZ economies will not be beneficial to the entire ECOWAS region. However, ECOWAS governments can take the risk of forming a monetary union in 2020 since a high probability of addressing a wide range of macroeconomic differentials across the region is incumbent on ex-post conditions, rather than on ex-ante prerequisite conditions that only focuses on the cost of relinquishing monetary autonomy.
Keywords
Business Cycle Synchronization, Optimum Currency Area, Endogeneity Hypothesis, Hodrick-Prescott Filter (HP), Ecowas
To cite this article
Louis Sevitenyi Nkwatoh, Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States, Economics. Vol. 8, No. 2, 2019, pp. 62-72. doi: 10.11648/j.eco.20190802.14
Copyright
Copyright © 2019 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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