Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States

Louis Sevitenyi Nkwatoh

doi:doi:10.11648/j.eco.20190802.14

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Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States

Louis Sevitenyi Nkwatoh

Published in Economics (Volume 8, Issue 2)

Received: 7 March 2019 Accepted: 22 April 2019 Published: 8 July 2019

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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.

Published in	Economics (Volume 8, Issue 2)
DOI	10.11648/j.eco.20190802.14
Page(s)	62-72
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Business Cycle Synchronization, Optimum Currency Area, Endogeneity Hypothesis, Hodrick-Prescott Filter (HP), Ecowas

References

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Louis Sevitenyi Nkwatoh. (2019). Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States. Economics, 8(2), 62-72. https://doi.org/10.11648/j.eco.20190802.14

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Louis Sevitenyi Nkwatoh. Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States. Economics. 2019, 8(2), 62-72. doi: 10.11648/j.eco.20190802.14

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Louis Sevitenyi Nkwatoh. Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States. Economics. 2019;8(2):62-72. doi: 10.11648/j.eco.20190802.14

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@article{10.11648/j.eco.20190802.14,
  author = {Louis Sevitenyi Nkwatoh},
  title = {Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States},
  journal = {Economics},
  volume = {8},
  number = {2},
  pages = {62-72},
  doi = {10.11648/j.eco.20190802.14},
  url = {https://doi.org/10.11648/j.eco.20190802.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20190802.14},
  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.},
 year = {2019}
}

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TY  - JOUR
T1  - Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States
AU  - Louis Sevitenyi Nkwatoh
Y1  - 2019/07/08
PY  - 2019
N1  - https://doi.org/10.11648/j.eco.20190802.14
DO  - 10.11648/j.eco.20190802.14
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 62
EP  - 72
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20190802.14
AB  - 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.
VL  - 8
IS  - 2
ER  -

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Louis Sevitenyi Nkwatoh

Economics Department, Yobe State University, Damturru, Nigeria

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Louis Sevitenyi Nkwatoh. (2019). Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States. Economics, 8(2), 62-72. https://doi.org/10.11648/j.eco.20190802.14

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Louis Sevitenyi Nkwatoh. Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States. Economics. 2019, 8(2), 62-72. doi: 10.11648/j.eco.20190802.14

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Louis Sevitenyi Nkwatoh. Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States. Economics. 2019;8(2):62-72. doi: 10.11648/j.eco.20190802.14

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@article{10.11648/j.eco.20190802.14,
  author = {Louis Sevitenyi Nkwatoh},
  title = {Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States},
  journal = {Economics},
  volume = {8},
  number = {2},
  pages = {62-72},
  doi = {10.11648/j.eco.20190802.14},
  url = {https://doi.org/10.11648/j.eco.20190802.14},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20190802.14},
  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.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - Business Cycle Synchronization and Optimum Currency Areas: The Case of the Economic Community of West African States
AU  - Louis Sevitenyi Nkwatoh
Y1  - 2019/07/08
PY  - 2019
N1  - https://doi.org/10.11648/j.eco.20190802.14
DO  - 10.11648/j.eco.20190802.14
T2  - Economics
JF  - Economics
JO  - Economics
SP  - 62
EP  - 72
PB  - Science Publishing Group
SN  - 2376-6603
UR  - https://doi.org/10.11648/j.eco.20190802.14
AB  - 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.
VL  - 8
IS  - 2
ER  -

Copy | Download