ISP Working Paper Number 05-04

Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis

Steven K. Buigut and Neven T. Valev, February 2005

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Abstract:

This paper uses VAR techniques to investigate the potential for forming monetary unions in Eastern and Southern Africa. All countries in the sample are members of various regional economic organizations. Some of the organizations have a monetary union as an immediate objective whereas others consider it as a possibility in the more distant future. Our objective is to sort out which countries are suitable candidates for a monetary union based on the synchronicity of demand and supply disturbances. Although economic shocks are not highly correlated across the entire region, we tentatively identify three sub regional clusters of countries that may benefit from a currency union.