Nonlinear dynamics and real time economic conditions in ECOWAS

Overview & Synopsis

Econometricians strive to propose the best approach to finding mechanisms to mitigate recessions or sustain economic expansions for as long as possible. They have been developing macroeconomic analysis tools a decade, most notably to identify and forecast business cycles in real-time.. Therefore, the lack of real-time monitoring of macroeconomic conditions and the absence of a baseline timeline of turning points in business cycles in West Africa are significant drawbacks, especially for a region that has been seeking a single currency for decades.In this context, this thesis proposes to provide several tools for a more relevant analysis through the ex-post and ex-ante monitoring of macroeconomic conditions for ECOWAS countries. We also attempts to enrich the debate on the readiness of ECOWAS member states to abandon their monetary sovereignty for a single currency. To this end, several econometric approaches, widely used in advanced countries, allow us to answer the above problem. Our proposals are thus structured around three econometric methods.First, we apply the wavelet technique to different business cycle pairs of thirteen ECOWAS member states to analyze their degree of convergence. Our results indicate that seven countries in the CFA franc zone and four other ECOWAS economies, namely Nigeria, Ghana, The Gambia, and Cape Verde, are ready to abandon their monetary sovereignty in favor of a common monetary policy.The second proposal focuses on monitoring macroeconomic conditions in Cote d'Ivoire in real-time. To this end, we calibrate the now-casting model on a monthly series of several economic variables. A Matlab algorithm employs a version of the now-casting model used by the New York Federal Reserve.. A Macroeconomic Conditions Index (MCI) reports findings that, to some extent, parallel those of the National Institute of Statistics of Côte d'Ivoire.Finally, the thesis proposes a monthly reference chronology of business cycle turning points for Ivory Coast using a three-stage analysis. To begin, we employ the Bry-Boschan routine to generate NBER-type business cycle phases. A finite Markov model then automates a new set of turning points using ten coincident indicators. Depending on the circumstances, a narrative refines the cyclical phases derived from the first two steps and identifies the final turning points of the business cycle for Côte d'Ivoire. As per our findings, Ivory Coast experienced seven (7) periods of recession between 1996 and 2019. Repeated political crises appear to have been significant sources of downturns.To conclude, we note that the progress made in data collection in several statistical institutes in West Africa, on the one hand, and the development of relevant economic analysis tools observed in industrialized countries, on the other hand, can be used for macroeconomic analysis in ECOWAS countries. Better yet, there are new tools based on parametric factor models that are flexible enough to adapt to varying data frequencies, notably machine learning applied to BIG Data.