This study uses detailed micro price data to estimate the impact of closer monetary union on the integration of product markets across countries, considering 2 policy shocks from Botswana. Using the difference-in-difference approach, the results reveal that the adoption by Botswana of a crawling peg exchange policy reduced price differences between South Africa and Botswana by 4 percentage points. Subsequent changes in the Botswana monetary policy regime further reduced price gaps by 2 percentage points. These results provide support for the effectiveness of alignment in interest rate and exchange rate policies in enhancing the integration of product markets between countries.
This research was funded under the Private Enterprise Development in Low Income Countries (PEDL) Programme
Edwards, L., Nchake, M. and Rankin, N. (2017) Closer Monetary Union and Product Market Integration in Emerging Economies: Evidence from the Common Monetary Area in Southern Africa, International Review of Economics and Finance.
Closer Monetary Union and Product Market Integration in Emerging Economies: Evidence from the Common Monetary Area in Southern Africa