Real and monetary policy convergence: EMU crisis to the CFA zone
Abstract
Purpose
A major lesson of the European Monetary Union (EMU) crisis is that serious disequilibria result from regional monetary arrangements not designed to be robust to a variety of shocks. The purpose of this paper is to assess these disequilibria within the Economic and Monetary Community of Central Africa (CEMAC), West African Economic and Monetary Union (UEMOA) and Financial Community of Africa (CFA) zones.
Design/methodology/approach
In the assessments, monetary policy targets inflation and financial dynamics of depth, efficiency, activity and size while real sector policy targets economic performance in terms of GDP growth. The author also provides the speed of convergence and time required to achieve a 100 percent convergence.
Findings
But for financial intermediary size within the CFA zone, findings, for the most part, support only unconditional convergence. There is no form of convergence within the CEMAC zone.
Practical implications
The broad insignificance of conditional convergence results has substantial policy implications. Monetary and real policies, which are often homogenous for member states, are thwarted by heterogeneous structural and institutional characteristics, which give rise to different levels and patterns of financial intermediary development. Therefore, member states should work towards harmonizing cross‐country differences in structural and institutional characteristics that hamper the effectiveness of monetary policies.
Originality/value
The paper provides warning signs to the CFA zone in the heat of the Euro zone crises.
Keywords
Citation
Asongu, S.A. (2013), "Real and monetary policy convergence: EMU crisis to the CFA zone", Journal of Financial Economic Policy, Vol. 5 No. 1, pp. 20-38. https://doi.org/10.1108/17576381311317763
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited