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

  • Romain Houssa

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 shock 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 Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2004-17.

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Date of creation: 2004
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Handle: RePEc:csa:wpaper:2004-17
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  1. Newey, Whitney K & Powell, James L & Walker, James R, 1990. "Semiparametric Estimation of Selection Models: Some Empirical Results," American Economic Review, American Economic Association, vol. 80(2), pages 324-28, May.
  2. Barrett, Christopher B., 1996. "On price risk and the inverse farm size-productivity relationship," Journal of Development Economics, Elsevier, vol. 51(2), pages 193-215, December.
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