CEPII, Recherche et Expertise sur l'economie mondiale
Term of Trade Shocks in a Monetary Union: an Application to West-Africa

Loïc Batté
Agnès Bénassy-Quéré
Benjamin Carton
Gilles Dufrénot

 Highlights :

 Abstract :
We propose a two-country DSGE model of the Dutch disease in a monetary union, calibrated on Nigeria and 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 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.

 Keywords : Dutch disease | DSGE | Monetary union | Optimal monetary policy

 JEL : E52, F41, Q33
CEPII Working Paper
N°2009-07, April 2009

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Emerging Countries