IMF Working Papers

A Quarterly Projection Model for the WAEMU

By Carlos de Resende, Alsim Fall, Demba Sy

October 28, 2022

Download PDF

Preview Citation

Format: Chicago

Carlos de Resende, Alsim Fall, and Demba Sy. A Quarterly Projection Model for the WAEMU, (USA: International Monetary Fund, 2022) accessed December 10, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This study describes a semi-structural New-Keynesian Quarterly Projection Model (QPM) for the WAEMU zone. In the context of a fixed exchange rate regime and relatively tight capital controls, the central bank for the WAEMU monetary union (Banque Centrale des États de l’Afrique de l’Ouest, BCEAO) can exert some influence on the domestic money markets and interest rates. We adjusted the canonical version of a New Keynesian semi-structural Quarterly Projection Model (QPM) to capture that feature and other aspects specific to the BCEAO monetary policy framework, including an implicit foreign exchange reserve target. The model, which is parametrized though and mix of calibration and Bayesian estimation techniques, displays dynamic properties for the main variables in response to various shocks that are in line with theoretical priors and empirical evidence. Medium-term forecasts considering the Covid-19 pandemic produce sensible results when compared with forecast produced by a standard VAR. Moments computed from artificial data generated with the model match well those observed in the data. Overall, the model displays desirable analytical properties and sensible data-matching and forecasting capabilities and could, therefore, be used by the BCEAO to identify relevant shocks, map their propagation into the WAEMU regional economy, and better support its monetary policy decisions.

Subject: Central Banks, Exchange rate arrangements, Foreign exchange, Inflation, International reserves, National accounts, Prices, Real exchange rates, Return on investment

Keywords: Aggregate demand shock, BCEAO, BCEAO monetary policy framework, Cost-push shock, Exchange rate arrangements, Global, Inflation, International reserves, Monetary Policy, Monetary policy shock, Projection model, Quarterly Projection Model, Real exchange rates, Return on investment, Transmission Mechanism, WAEMU, West Africa

Publication Details

  • Pages:

    45

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/215

  • Stock No:

    WPIEA2022215

  • ISBN:

    9798400225864

  • ISSN:

    1018-5941