Abstract
Motivated by the drive to achieve monetary union in the Economic Community of West African States (ECOWAS), the vulnerability of member countries to global and regional shocks is examined, using the global VAR (GVAR) framework so constructed for the purpose. The global shocks are those due to global commodity prices, oil and food prices, while the regional shocks capture the influence of their major trading partners; the United States (US) and China. We estimate a 59-unit GVAR model comprising advanced and emerging economies. Two findings are discernible from the results. First, the constituent countries are vulnerable to both global and regional shocks. Second, after grouping the countries into two recognized divisions [i.e., the West African Economic and Monetary Union (WAEMU) and West African Monetary Zone (WAMZ)], we find significant variations in their response to shocks. These findings have implications on the common monetary zone agenda for the region, particularly as regards to the heterogeneous response and vulnerability of the constituent countries to shocks. Resolving such vulnerabilities is a major requirement for the success of a monetary union.
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