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Sissoko Publishes on Theory of Optimum Currency Areas in Sub-Saharan Africa

Posted on 3/12/2013 7:22:16 PM

Yaya Sissoko’s article entitled “Optimum Currency Areas and Synchronization of Business Cycles in Sub-Saharan Africa” was published in the China-USA Business Review, Vol. 11, Issue 11, November 2012.

This paper investigates the Theory of Optimum Currency Areas in Sub-Saharan Africa (SSA). This issue was examined in a context of small open economies of SSA using a structural vector autoregression (VAR) approach with limited capital mobility and a weak-banking system in Africa. A structural VAR implies long run restrictions of a small open economy model to identify the shocks. Using annual data series for 30 SSA countries from 1960 to 2000, the findings suggest similar terms of trade and trade balance disturbances in the CFA (“Communauté Financière Africaine”) and non-CFA countries in contrast to the supply and demand shocks which tend to influence the non-CFA zone to a greater extent. The sizes of the disturbances and the speed of adjustment confirm that the CFA and non-CFA countries are suitable of forming a monetary union. The adjustment speed is on average 9 to 18 months the CFA zone and 12 to 24 in the non-CFA zone. These results also suggest the creation of smaller monetary arrangements in the CFA and non-CFA regions as preliminary steps in creating one monetary union in Africa. The findings support evidence of weaker business cycle synchronization in Sub-Saharan Africa.

Department of Economics