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

Author

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  • Agnès Bénassy-Quéré

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

  • Loïc Batté
  • Benjamin Carton

    (CEPII - Centre d'études prospectives et d'informations internationales)

  • Gilles Dufrénot

    (DEFI - Centre de recherche en développement économique et finance internationale - GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Agnès Bénassy-Quéré & Loïc Batté & Benjamin Carton & Gilles Dufrénot, 2010. "Asymmetric Terms-of-Trade Shocks in a Monetary Union: An Application to West Africa," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00634785, HAL.
    • Handle: RePEc:hal:cesptp:hal-00634785
    DOI: 10.1093/jae/ejq022
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    Cited by:

    1. Edouard Mien & Michaël Goujon, 2022. "40 Years of Dutch Disease Literature: Lessons for Developing Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 351-383, September.
    2. Issiaka Coulibaly & Blaise Gnimassoun, 2013. "Current account sustainability in Sub-Saharan Africa: Does the exchange rate regime matter?," Working Papers hal-04141160, HAL.
    3. 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.
    4. Adjalala, Frida & Dissou, Yazid, 2023. "Idiosyncratic shocks in a currency union: Insights from West Africa," Economic Modelling, Elsevier, vol. 122(C).
    5. Jean-Pierre Allegret & Mohamed Tahar Benkhodja, 2014. "The Dutch disease effect in a high versus low oil dependent countries," Post-Print hal-01385965, HAL.

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