Exogenous shocks and financial stability in the West African Economic and Monetary Union (WAEMU)

Abstract

The search for financial stability remains a priority in every country today, mainly because of high costs incurred by financial crises and induced effects of financial stability on economic growth. The economies of the West African Economic and Monetary Union (WAEMU) countries are characterized by a strong dependence on the outside, especially with regard to the value of their currency, the CFA franc, and thus the variability of their exports but also the terms of trade. This study is conducted using an equation of financial instability with panel data. We used simple moving averages to measure the volatility for the different variables. The results show that the main predictors of financial instability in the WAEMU are: distributed credit, inflation and the rate of export growth. The study shows the need for diversification of production in the area and effective supervision of the banking system to better cope with shocks from internal and external, and financial stability. Key words: Financial stability, financial development, economic growth, West African Economic and Monetary Union (WAEMU), exportation, exogenous shocks, CFA franc.