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

By Paul R Masson, Xavier Debrun, Catherine A Pattillo

December 1, 2002

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Paul R Masson, Xavier Debrun, and Catherine A Pattillo. Monetary Union in West Africa: Who Might Gain, Who Might Lose, and Why?, (USA: International Monetary Fund, 2002) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We develop a multicountry model in which governments aim at excessive spending in order to serve the narrow interests of the group in power. This puts pressure on the monetary authorities to extract seigniorage, and thus affects the incentives countries would have to participate in a monetary union. This feature, ignored by the monetary union literature for Europe, is potentially important in Africa. We calibrate the model to data for West Africa and use it to assess proposed ECOWAS monetary unions. We conclude that monetary union with Nigeria would not be in the interests of other ECOWAS countries, unless it were accompanied by effective discipline over Nigeria's fiscal policies.

Subject: Currencies, Economic integration, Expenditure, Inflation, International trade, Monetary unions, Money, Prices, Tax incentives, Terms of trade

Keywords: Africa, Currencies, ECOWAS country, ECOWAS monetary union, Fiscal distortions, Government spending, Inflation, Monetary policy, Monetary union, Monetary unions, Terms of trade, WAEMU country, WAEMU member states, WAEMU monetary union, West Africa, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/226
Stock No:

WPIEA2262002
ISBN:

9781451875393
ISSN:

1018-5941

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