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

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

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

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
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00634785
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Published in Journal of African Economies, Oxford University Press (OUP), 2010, 19 (5), pp.657-690. ⟨10.1093/jae/ejq022⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00634785

DOI: 10.1093/jae/ejq022

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