Real exchange rates persistence in the West African monetary zone: a revisit of the PPP puzzle

Abstract

Purpose

The purpose of this paper is to examine whether the purchasing power parity (PPP) holds for countries in the West African Monetary Zone (WAMZ).

Design/methodology/approach

The author uses time series and panel data techniques.

Findings

Overall, the evidence is inconclusive. The time series and panel unit root tests rejected the PPP. The time series cointegration test supported it. The panel cointegration tests are, however, inconclusive.

Research limitations/implications

The inconclusive evidence implies that the appropriateness of the PPP-based policies which have been implemented in the WAMZ may be difficult to assess. Moreover, the question of whether the WAMZ agenda may face trade obstacles is still widely open. Perhaps fractional unit root and cointegration techniques may help pin down conclusive evidence. Future studies may consider this direction.

Originality/value

The paper is original in the sense that it is the first to utilize a mixture of time series and panel data techniques to examine the PPP hypothesis for these countries.

Citation

Njindan Iyke, B. (2017), "Real exchange rates persistence in the West African monetary zone: a revisit of the PPP puzzle", International Journal of Emerging Markets, Vol. 12 No. 2, pp. 366-383. https://doi.org/10.1108/IJoEM-08-2015-0155