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Are Inflation differentials converging or diverging in the WAMZ region? Evidence from First and Second Generation Panel Unit Root Analysis.

. Divine Ndubuisi. Obodoechi & Madueme Ifeoma Stella


Abstract

Inflation convergence is a crucial prerequisite for the formation and establishment of a monetary union. Over the years, it has been relatively complex for nations to form a monetary union in the West African Monetary Zone (WAMZ) area. There have been numerous studies on inflation convergence, in various monetary unions around the world but none has been discussed in the WAMZ region as extensively as it is discussed in this study. Hence the motivation of this study. On this premise, the study ascertains whether there is inflation convergence in the region. The study utilizes first and second generation unit root tests to ascertain inflation convergence in the region. Our results revealed that there is significant evidence of inflation divergence in the region, using the first and second generations of the panel unit root test. These interesting findings suggest that the West African Monetary Zone doesn’t yet have sufficient criteria for take-off or its formation.    

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