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Monetary Union in West Africa and Asymmetric Shocks: A Dynamic Structural Factor Model Approach

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Author Info
Romain Houssa (Catholic University of Leuven, Belgium)
Abstract

We analyse the costs of a monetary union in West Africa by means of asymmetric aggregate demand and aggregate supply shocks. Previous studies have estimated the shocks with the VAR model.We discuss the limits of this approach and apply a new technique based on the dynamic factor model.The results suggest the presence of economic costs for a monetary union in West Africa because aggregate supply shocks are poorly correlated or asymmetric across these countries. Aggregate demand shocks are more positively or less negatively correlated between West African countries. These conclusions imply some policy recommendations for the monetary union project in West Africa.

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Paper provided by EconWPA in its series Development and Comp Systems with number 0409063.

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Length: 29 pages
Date of creation: 28 Sep 2004
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Handle: RePEc:wpa:wuwpdc:0409063

Note: Type of Document - pdf; pages: 29
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Related research
Keywords: Asymmetric Shocks Monetary Union Factor Model

Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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