 Idiosyncratic shocks in a currency union: Insights from West AfricaFrida Adjalala and Yazid Dissou Economic Modelling, 2023, vol. 122, issue C Abstract: We develop a three-region dynamic stochastic general equilibrium model to investigate the effects of productivity shocks in the currency union proposed by the Economic Community of West African States (ECOWAS). We divide ECOWAS into three regions: Nigeria, the West African Economic and Monetary Union, and the rest of the zone. We investigate the responses to idiosyncratic productivity shocks in the presence of structural heterogeneity under two regimes: monetary independence and monetary union. Our results show that the signs and magnitudes of the effects of idiosyncratic shocks depend on the monetary regime. In the monetary independence regime, the nominal interest rate reacts differently in regions hit by the shock. While the affected region is negatively impacted, the other regions benefit. The monetary union regime amplifies the effects of the shocks, and under this regime, idiosyncratic productivity shocks do not impose a substantial welfare cost on its members. Keywords: Currency unions; Productivity shocks; Monetary policy; DSGE modeling; ECOWAS (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:122:y:2023:i:c:s0264999323000536 DOI: 10.1016/j.econmod.2023.106241 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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