Real exchange rate and asymmetric shocks in the West African Monetary Zone

This is an accepted manuscript of an article published by Elsevier in Journal of International Financial Markets, Institutions and Money on 20/12/2018, available online: https://doi.org/10.1016/j.intfin.2018.12.005 The accepted version of the publication may differ from the final published version.This paper examines real effective exchange rate (REER) responses to shocks in exchange rate determinants for the West African Monetary Zone (WAMZ) over the period 1980���2015. The analysis is based on a country-by-country VECM, and oil price, supply and demand shocks are identified using long run restrictions in a structural VAR model. We report significant differences in the response of REER to real oil price, productivity (supply) and demand preference shocks across these economies. In addition the relative contribution of these shocks to REER movements in the short and long run appears to be different across economies. Our findings suggest that the WAMZ countries are structurally different, and asymmetric shocks with inadequate adjustment mechanisms imply that a monetary union would be costly