Structural breaks in some selected WAMZ macroeconomic time series
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Date
2011-09
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Central Bank of Nigeria
Abstract
Anecdotal evidence shows that country-specific inflation has remained largely persistent
and heterogeneous across the West African Monetary Zone (WAMZ). Uncertainty about
the nature of inflation persistence often undermines regional convergence due to the
asymmetric responses from monetary authorities. Consequently, the objective of this paper
is to identify whether or not structural breaks exist in the price level of member countries.
The paper uses the method of Lee and Strazicich (2003) with multiple breaks to identify if
there were spurious rejections in the ADF tests of selected macroeconomic variables of
WAMZ countries. The result fails to reject the existence of the null hypothesis of unit root for
fifteen (15) variables and a second root for twenty (20) variables. With the exception of
Ghana, the CPI for other member countries has a second root, indicating that inflation is
explosive with hysteresis effect. This feature of inflation is associated with a similar structural
dysfunction in other macroeconomic indicators, including the exchange rate, nominal
gross domestic product, money supply and the lending rate. In other words, breaks in
these fundamentals are important sources of persistence and hysteresis in the price level.
Description
Keywords
Selected WAMZ macroeconomic data, Structural breaks, Unit root test
Citation
Adamgbe, E. T., & Agu, Cletus C. (2011). Structural breaks in some selected WAMZ Macroeconomic time series, Economic and Financial Review, 49(3), 31-45