Financial Cycles Synchronization in WAEMU Countries: Implications for Macroprudential Policy

The effectiveness of macroprudential policies implemented in a monetary union depends on several factors, including the homogeneity of the financial cycles of the different countries. In this paper, we analyze the synchronization and convergence of financial cycles in the West African Economic and Monetary Union (WAEMU). The cross-correlation analysis and the concordance index of Harding and Pagan reveal the asynchronous nature of the financial cycles of the Union over the period 2005Q1 to 2020Q4. The characteristics of national financial cycles have been analyzed, revealing important differences in the duration and amplitude of the cycle phases. Finally, using the concepts of sigma-convergence to financial cycles, the paper reveals a lack of financial cyclical convergence. Such results suggest that a common and homogenous macroprudential policy should be carefully implemented, taking into account specificities in country level financial cycles.