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Financial Instability and Inequality Dynamics in the WAEMU

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  • Thierno Thioune

    (Faculty of Economic and Management Sciences, Cheikh Anta Diop University of Dakar)

Abstract

This article assesses the effect of financial instability on income inequality and vice versa. The methodology used in this article is based on two approaches: the construction of the synthetic index of financial instability (SIFI) and the panel vector autoregressive (PVAR) approach. The results obtained help to explain that the disparity of income in a West African Economic and Monetary Union (WAEMU) country in each year negatively infl uences the stability of the financial sector the following year. Functions of impulse responses show that a shock to financial stability has a negative effect on itself and leads to a stable situation after seven periods. A rise in income inequality in WAEMU countries tends to mitigate financial instability at first, before boosting a higher level of instability. Following this increase, inequality will decline, but at a very slow pace.

Suggested Citation

  • Thierno Thioune, 2017. "Financial Instability and Inequality Dynamics in the WAEMU," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 2(1), pages 43-62, June.
    • Handle: RePEc:sgh:erfinj:v:2:y:2017:i:1:p:43-62
    DOI: 10.33119/ERFIN.2017.2.1.3
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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