Monetary Union in West Africa: Who Might Gain, Who Might Lose, and Why?

By X. Debrun, Paul R. Masson, Catherine Pattillo. Social Science Research Network, 2005

142 citations recorded by the source corpus.

We develop a model in which governments' financing needs exceed the socially optimal level because public resources are diverted to serve the narrow interests of the group in power. From a social welfare perspective, this results in undue pressure on the central bank to extract seigniorage. Monetary policy also suffers from an expansive bias, owing to the authorities' inability to precommit to price stability. Such a conjecture about the fiscal-monetary policy mix appears quite relevant in Africa, with deep implications for the incentives of fiscally heterogeneous countries to form a currency union. We calibrate the model to data for West Africa and use it to assess proposed ECOWAS monetary unions. Fiscal heterogeneity indeed appears critical in shaping regional currency blocs that would be mutually beneficial for all their members. In particular, Nigeria's membership in the configurations currently envisaged would not be in the interests of other ECOWAS countries unless it were accompanied by effective containment on Nigeria's financing needs.

Subfields: Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/2fcf825c1b3774af48670bfd610bfa7351e729fc

Citations in the corpus

• The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research (2010, unknown): “Debrun, Masson, and Pattillo (2005) analyze the plans for the WAMZ union in the context of a model in the spirit of Alesina and Barro (2002), but with some major differences.”