An optimum condition for attainment of a single currency project in West Africa

Abstract

The paper examines the primary and secondary convergence conditions for a monetary union in the second monetary zone for West Africa. The focus of the paper is on the primary conditions as they provide the basis for the secondary conditions. The annual panel data used for the research are obtained from the West African Monetary Agency website: www.wami.imao.org. The panel variables are first tested for unit root and stationarity. The panel unit root test results show that all the variables are integrated of order one. The stationarity test confirms the result, as the variables are non-stationarity in level but stationarity after first difference. The Long-run co integration equation is obtained using the pooled group mean estimator. Linear programming is then applied on the result of the long-run equationto obtain the optimal conditions for attainment of single currency project for West Africa. The result shows that the objective value of 0.0462 is obtained with inflation contributing more to the variation in the government external reserves. The Central Banks in West Africa should be cautious in implementing inflation targeting as a way of tackling their economic problem. (English) [ABSTRACT FROM AUTHOR]