Investigating the Sources of Asymmetric Growth and Inflation Shocks in the WAEMU Region
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Date
2021-11-25
Authors
Tadenyo, Yao Dossa
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
Empirical research has already established the existence of asymmetric shocks
between the countries of the West African Economic and Monetary Union (WAEMU).
The current study re-examines this issue by attempting to answer the following
question: Are the asymmetries within the WAEMU region related to country specific
shocks or do they stem from heterogeneous responses to common shocks?
To answer this question, the study relied on the estimation of a bivariate structural
VAR model for each WAEMU member country using annual data from 1997 to 2019.
The results reveal weak correlations between growth shocks in WAEMU countries,
while price shocks appear relatively more correlated. This situation can be explained
by the existence of persistent national factors that largely determine fluctuations in
real gross domestic product (GDP) and the harmonized consumer price index within
the Union.
Counterfactual analyses were conducted to ascertain what the symmetry of
shocks would be if they had only a specific or common component. They show that
the persistence and extent of country-specific factors contribute significantly to the
differences in growth and inflation rates within the WAEMU region. Moreover, shocks
common to the member countries of the Union explain most of the fluctuations
in the real GDP and consumer price cycle within the Union. The observed national
asymmetries would not be associated with heterogeneous responses to common
shocks among the Union’s member countries. Rather, they are due to the persistence
and significance of specific national factors. Regressions carried out on panel data
from the Union countries support the persistence over time of specific factors linked
to growth and inflation.
Description
Keywords
monetary union, , optimal monetary zone, , asymmetric shocks, , WAEMU.