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

Romain Houssa
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Romain Houssa: Catholic University of Leuven, Belgium

Development and Comp Systems from EconWPA

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 limits 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 positively or less negatively correlated between West African countries. These conclusions imply some policy recommendations for the monetary union project in West Africa.

Keywords: Asymmetric Shocks; Monetary Union; Factor Model (search for similar items in EconPapers)
JEL-codes: C33 F42 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-cba, nep-fin, nep-ifn, nep-mac and nep-mon
Date: 2004-09-28
Note: Type of Document - pdf; pages: 29
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpdc:0409063

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