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

  • Romain Houssa

    (Catholic University of Leuven, Belgium)

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
Date of revision:
Handle: RePEc:wpa:wuwpdc:0409063
Note: Type of Document - pdf; pages: 29
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