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Term of Trade Shocks in a Monetary Union: an Application to West-Africa

Loïc Batté, Agnès Benassy-Quere (), Benjamin Carton () and Gilles Dufrénot ()

Working Papers from CEPII research center

Abstract: We propose a two-country DSGE model of the Dutch disease in a monetary union, calibrated on Nigeria and 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 shocks, the most stabilizing regime for Nigeria is a fixed money supply whereas it is a fixed exchange rate for WAEMU. However, the introduction of an oil stabilization 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.

Keywords: Dutch disease; DSGE; Monetary union; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E52 F41 Q33 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-afr, nep-cba, nep-dev, nep-dge, nep-mac, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepidt:2009-07

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