Heterogeneous Monetary Zone and Macroprudential Policy: The Case of the Waemu Zone

Abstract

This article raises the question of the conduct of a common macroprudential policy aimed at correcting specific financial imbalances in the presence of structural heterogeneity that characterizes the monetary zone, in this case the WAEMU zone. For this reason, we develop a neo-Keynesian DSGE^[1] model in an open economy with two countries, namely the core countries and those of the periphery, with increased financial frictions. The results show that in the presence of structural heterogeneities, country-adjusted macroprudential measures, as opposed to a common macroprudential policy, are the best way to reduce specific financial imbalances. However, in financially integrated economies, the existence of negative externalities implies the need to coordinate national macroprudential policies in order to increase the degree of currency area optimality.

[1] Dynamic Stochastic General Equilibrium