Are African business cycles synchronized? Evidence from spatio-temporal modeling

This paper investigates the business cycle synchronization in Africa, which is important for the definition of optimal monetary unions. Previous studies adopted either a cross-sectional or a time series approach, and this may have led to substantial variation in the findings for common business cycles across African countries. Considering fifty-two African economies, we study business cycles’ synchronization with a novel spatio-temporal hierarchical approach founded on the gravity model. The introduction of the spatial dimension is particularly relevant for Africa, where infrastructure constraints make monetary unions less feasible due to higher trading costs. We find positive evidence for the Economic Community of West African States (ECOWAS) and the Common Monetary Area (CMA) feasibility, while our results do not support the Central Africa CFA and the East African Monetary Union (EAMU) monetary unions.