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Modeling Macroeconomic Shocks in the CFA Franc Zone

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  • David Fielding
  • Kalvinder Shields

Abstract

In this paper we modify the method of Blanchard and Quah (1989) in order to estimate a structural VAR model appropriate for a small open economy. In this way we identify shocks to output and prices in the members of the two monetary unions that make up the African CFA Franc Zone. The costs of monetary union membership will depend on the extent to which price and output shocks are correlated across countries, and the degree of similarity in the long run effects of the shocks on the macro-economy. The policy conclusions depend on the relative importance of different macroeconomic variables to policymakers, and the speed with which a policymaker is able to respond to a shock.

Suggested Citation

  • David Fielding & Kalvinder Shields, 2000. "Modeling Macroeconomic Shocks in the CFA Franc Zone," Discussion Papers in Economics 00/7, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:00/7
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Franc Zone; Optimal Currency Areas; Structural VAR Models;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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