Convergence among inflation, growth, and exchange rate: North African evidence

This paper examines the convergence dynamics of inflation, economic development, and exchange rates in six North African countries—Algeria, Egypt, Libya, Mauritania, Morocco, and Tunisia—from 1980 to 2024. The analysis uses a unique econometric approach, including panel unit root tests, multivariate convergence and stability models, and Dumitrescu-Hurlin panel causality tests, to determine whether these macroeconomic variables show symptoms of convergence and dependency. The findings suggest statistically significant but diverse convergence tendencies, with better synchronization in Morocco, Tunisia, Algeria, and Libya, while Egypt and Mauritania continue to diverge. Notably, the analysis finds strong bidirectional causality between inflation, exchange rates, and economic growth, underscoring inflation's critical role in regional macroeconomic interactions. Conversely, the weak causal relationship between exchange rates and growth highlights structural impediments to effective monetary transmission. These findings have significant implications for policy coordination, inflation targeting, and regional monetary integration, particularly in the context of a possible North African monetary union. The paper suggests specific convergence tactics and structural reforms to improve macroeconomic alignment and integration throughout the area. JEL Classification: C31, E32, E58, F31, F43, O55