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


  • Benjamin Carton
  • Agnès Bénassy-Quéré
  • Gilles Dufrénot
  • Loïc Batté


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. Copyright 2010 The author 2010. Published by Oxford University Press on behalf of the Centre for the Study of African Economies. All rights reserved. For permissions, please email:, Oxford University Press.

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  • Benjamin Carton & Agnès Bénassy-Quéré & Gilles Dufrénot & Loïc Batté, 2010. "Asymmetric Terms-of-Trade Shocks in a Monetary Union: An Application to West Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 19(5), pages 657-690, November.
  • Handle: RePEc:oup:jafrec:v:19:y:2010:i:5:p:657-690

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    References listed on IDEAS

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    Cited by:

    1. Gnimassoun, Blaise & Coulibaly, Issiaka, 2014. "Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter?," Economic Modelling, Elsevier, vol. 40(C), pages 208-226.

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