Asymmetric terms-of-trade shocks in a monetary union: an application to West Africa

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Periodical article

Title:	Asymmetric terms-of-trade shocks in a monetary union: an application to West Africa
Author:	Carton, Benjamin
Year:	2010
Periodical:	Journal of African Economies (ISSN 0963-8024)
Volume:	19
Issue:	5
Pages:	657-690
Language:	English
Geographic terms:	West Africa Nigeria
Subjects:	terms of trade monetary policy economic models Union Economique et Monétaire Ouest-Africaine
External link:	https://jae.oxfordjournals.org/content/19/5/657.full.pdf
Abstract:	The authors 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. The authors find that, in the face of oil-price shocks, the most stabilizing regime for Nigeria is a fixed money supply, whereas it is a fixed exchange rate for WAEMU. However, the introduction of an oil-stabilization 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. App., bibliogr., notes, ref., sum. [Journal abstract]