TITLE:
Exchange Rates and Inflation Rates Convergence in ECOWAS
AUTHORS:
Amath Ndiaye
KEYWORDS:
Exchange Rate Path through, Convergence, Inflation ECOWAS
JOURNAL NAME:
Modern Economy,
Vol.12 No.12,
December
3,
2021
ABSTRACT: The objective of this study is to see, among ECOWAS
countries, if the difference between the fixed exchange rate
regime of the WAEMU countries on the one hand and the flexible regimes of the
WAMZ countries on the other hand, is a factor of non-convergence of inflation
rates. To do so, we have first applied the Granger causality tests to look at the causality
between exchange rate and inflation; then we have used an inflation differential
model (IDM) to identify the factors of convergence or
non-convergence of inflation rates between WAEMU and WAMZ. Our results show
that WAMZ countries, due to their flexible
exchange rate regimes, are subject to exchange rate pass-through (ERPT),
unlike their WAEMU neighbours. Moreover, the results of the estimates of the
inflation differential model (IDM) reveal that neither the evolution of the output nor that of the money supply, on both sides,
explain the non-convergence of the inflation rates between WAEMU and
WAMZ countries, but they show that the
non-convergence of the inflation rates is significantly linked to the
difference in the evolution of the exchange rates.