Investigating the Sources of Asymmetric Growth and Inflation Shocks in the WAEMU Region

Empirical research has already established the existence of asymmetric shocks between the countries of the West African Economic and Monetary Union (WAEMU). The current study re-examines this issue by attempting to answer the following question: Are the asymmetries within the WAEMU region related to country specific shocks or do they stem from heterogeneous responses to common shocks? To answer this question, the study relied on the estimation of a bivariate structural VAR model for each WAEMU member country using annual data from 1997 to 2019. The results reveal weak correlations between growth shocks in WAEMU countries, while price shocks appear relatively more correlated. This situation can be explained by the existence of persistent national factors that largely determine fluctuations in real gross domestic product (GDP) and the harmonized consumer price index within the Union. Counterfactual analyses were conducted to ascertain what the symmetry of shocks would be if they had only a specific or common component. They show that the persistence and extent of country-specific factors contribute significantly to the differences in growth and inflation rates within the WAEMU region. Moreover, shocks common to the member countries of the Union explain most of the fluctuations in the real GDP and consumer price cycle within the Union. The observed national asymmetries would not be associated with heterogeneous responses to common shocks among the Union’s member countries. Rather, they are due to the persistence and significance of specific national factors. Regressions carried out on panel data from the Union countries support the persistence over time of specific factors linked to growth and inflation.