The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Paul Masson, Xavier Debrun, and Catherine Pattillo
INTERNATIONAL MONETARY FUND
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.