Can Inflation in West African Monetary Zone (WAMZ) Converge without Ex-Ante Monetary Policy Coordination?

Abstract

This paper reviews the trend of the West African Monetary Zone (WAMZ) country-specific inflation, and argues that the union may not be feasible with insistence on inflation convergence to predetermine the benchmark. This is because, monetary policy asymmetry in force currently is assumed to be responsible for the inflation differential. Based on a 6-country panel dataset, that span the year 2001-2019, this study estimates the descriptive statistics and adopts econometrics method, to ascertain the tendency of WAMZ’s inflation of converging over-time. Also, the study estimates the time of convergence using the Neoclassical Beta (β) convergence as foundation for methodology adopted. The descriptive results show that most of the participating countries did not attain the desired inflation convergence target over the sample period. And that, the un-weighted average zonal inflation rates were most often above a single digit target which also vary widely among the countries. The result of the Beta convergence indicates non-convergence of zonal inflation, which maybe as a result of divergence (asymmetric) policy thrust. However, it is hopeful that if there is ex-ante policies coordination, meeting this inflation convergence criterion would not be a ''herculean'' task. Therefore, this study concludes that, major country-specific monetary policy instruments that results to inflation divergence are the pursuit of distorted financial prices, and expansionary monetary policies, propelled by public credit which tended to crowd out private sector. However, this study recommends that ex-ante zonal policy coordination is technically essential for ex-post inflation convergence in WAMZ.