This study analyses the feasibility of going ahead with a formation of currency union proposed by the ECOWAS[1] members to be launched in 2020. This study utilizes annual data, namely, annual GDP growth rate, GDP at current prices and GDP at constant prices from 1980 to 2015 for 13 West African Countries, and a factor augmented vector autoregressive model (FAVAR) is being utilized to accomplish this task. The finding of the study reveals that the West African countries exhibit similarity in terms of response to the same shock and contribution to fluctuation on macroeconomic variables. Thus, this study suggests that the ECOWAS can go ahead with the currency unification as the region satisfies some of the conditions for an Optimum Currency Area (OCA).

KEYWORDS: currency union, business cycle, trade openness, GDP