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Monetary Union in West Africa and Asymmetric Shocks: a Dynamic Structural Factor Model

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  • Romain Houssa

Abstract

We analyse the costs of a monetary union in West Africa by means of asymmetric aggregate demand and aggregate supply shocks. Previous studies have estimated the shocks with the VAR model. We discuss the limitations of this approach and apply a new technique based on the dynamic factor model. The results suggest the presence of economic costs for a monetary union in West Africa because aggregate supply shocks are poorly correlated or asymmetric across these countries. Aggregate demand shocks are more correlated between West African countries.

Suggested Citation

  • Romain Houssa, 2004. "Monetary Union in West Africa and Asymmetric Shocks: a Dynamic Structural Factor Model," Working Papers of Department of Economics, Leuven ces0411, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:ces0411
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    References listed on IDEAS

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    1. Barrett, Christopher B., 1996. "On price risk and the inverse farm size-productivity relationship," Journal of Development Economics, Elsevier, vol. 51(2), pages 193-215, December.
    2. Newey, Whitney K & Powell, James L & Walker, James R, 1990. "Semiparametric Estimation of Selection Models: Some Empirical Results," American Economic Review, American Economic Association, vol. 80(2), pages 324-328, May.
    3. Lamb, Russell L., 2003. "Inverse productivity: land quality, labor markets, and measurement error," Journal of Development Economics, Elsevier, vol. 71(1), pages 71-95, June.
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    Cited by:

    1. Magazzino, Cosimo, 2012. "Revenue and expenditure nexus: A case study of ECOWAS," Economics Discussion Papers 2012-57, Kiel Institute for the World Economy (IfW Kiel).
    2. E D Balogun, 2010. "Alternative reconsideration of output growth differential for West African Monetary Zone," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the SARB/IFC seminar on "Economic and financial convergence en route to regional economic integration: experience, prospects and statis, volume 32, pages 106-120, Bank for International Settlements.
    3. Daniel Agyapong & Anokye M. Adam, 2012. "Exchange Rate Behaviour: Implication for West African Monetary Zone," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 215-228, October.
    4. Raji, Rahman Olanrewaju, 2012. "REAL Exchange Rate Misalignment and Economic Performance of WEST AFRICAN MONETARY ZONE:Implications for macroeconomic unionisation," MPRA Paper 37385, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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