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

Author/Editor: Debrun, Xavier | Masson, Paul R. | Pattillo, Catherine A.
Authorized for Distribution: December 1, 2002
Electronic Access: Free Full Text (PDF file size is 1,135KB)
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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.
 
Series: Working Paper No. 02/226
Subject(s): Monetary unions | Africa | West African Economic and Monetary Union | Economic models
Author's keyword(s): Monetary Union | West Africa | Africa | Fiscal distortions
 
English  
    Published:   December 1, 2002        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2262002   Pages:   35
    Price:   US$15.00
       
     
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