Convergence of inflation rates in the perspective of a single currency in ECOWAS: Evidence from sigma (σ) convergence and beta (β) convergence

• Inflation convergence, key for ECOWAS single currency, in context of diverse exchange rate regimes. • Inflation higher in countries with flexible exchange rates than in those with fixed rates. • Unstable inflation convergence faster in WAEMU than in WAMZ, threatening monetary union 2027. • The fixed exchange rate and membership of the monetary union promote price stability. • Review the 5% target and launch the ECOWAS monetary union without waiting for all countries. This paper investigates the state of convergence of inflation rates using annual data from 1980 to 2026 for ECOWAS countries in the perspective of the single ECOWAS currency (SEC). This assessment is made using two key instruments: sigma (σ) convergence and beta (β) convergence. After cross-sectional estimation, the dynamic panel model using the generalized method of moments (GMM) over the period from 1980 to 2022 was used to strengthen the assessment of beta (β) convergence. For sigma (σ) convergence, the standard deviation of inflation rates was used to measure the state of convergence between countries with a fixed exchange rate regime (WAEMU and Cabo-Verde) and countries with a flexible exchange rate regime (WAMZ). The results show that a process of convergence is taking shape, but is not stable over time, and differs according to the type of exchange rate regime in place within ECOWAS. Indeed, WAEMU countries are converging much faster than their WAMZ neighbors. This situation is not favorable to the area's entry into a monetary union scheduled for 2027.