The impacts of convergence policies on macroeconomic stability in the West African monetary zone

Abstract

PurposeThis paper examines the effectiveness of the joint impact of convergence policy measures on macroeconomic stability conditions in the West African monetary zone (WAMZ) countries, using an annual panel data from 1990 to 2021.Design/methodology/approachIt uses the dynamic autoregressive distributed lag (ARDL) approach to exploit the short and long run dynamics macro stability. A composite convergence index was constructed and its impact was examined on three different macroeconomic stability measures representing: internal stability, external stability and overall stability.FindingsFindings from the study suggest that a unit deviation of the convergence policy index from its mean, in the short run, leads to worsening external and overall macroeconomic stability conditions in the zone, but it leads to improvement in the internal macroeconomic stability conditions. However, in the long run, the opposite occurs, a unit deviation of the convergence policy index from its mean, it leads to improvement in both external and overall macroeconomic stability situations and deterioration in internal macroeconomic stability situation.Practical implicationsIt is concluded that the convergence policy criteria are effective only in the long run and therefore these policies alone cannot be used to achieve short run macroeconomic stability within the zone. Thus, policymakers should have a second look at how fiscal and monetary policies are conducted and also work to address structural challenges.Originality/valueThe paper examines the effectiveness of the joint impact of convergence policy measures on macroeconomic stability conditions in the WAMZ countries.