Asymmetric Terms-of-Trade Shocks in a Monetary Union: An Application to West Africa

Agnès Benassy-Quere, Loïc Batté, Benjamin Carton and Gilles Dufrénot ()
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Benjamin Carton: CEPII - Centre d'études prospectives et d'informations internationales

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Abstract: We propose a two-country dynamic stochastic general equilibrium model of a monetary union facing asymmetric terms-of-trade shocks, calibrated on Nigeria and West African Economic and Monetary Union (WAEMU). Three monetary regimes are successively studied at the union level: a flexible exchange rate with constant money supply, a flexible exchange rate with an accommodating monetary policy and a fixed exchange-rate regime. We find that, in the face of oil-price shocks, the most stabilising regime for Nigeria is a fixed money supply, whereas it is a fixed exchange rate for WAEMU. However, the introduction of an oil-stabilisation fund can reduce the disagreement on the common policy rule. Furthermore, the two zones may agree on a fixed money-supply rule in the face of both oil- and agricultural-price shocks.

Date: 2010
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Published in Journal of African Economies, 2010, 19 (5), pp.657-690. ⟨10.1093/jae/ejq022⟩

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Journal Article: Asymmetric Terms-of-Trade Shocks in a Monetary Union: An Application to West Africa (2010)
Working Paper: Asymmetric Terms-of-Trade Shocks in a Monetary Union: An Application to West Africa (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00634785

DOI: 10.1093/jae/ejq022

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