This Thematic Study Note aims to improve our understanding of financial cycles in WAEMU countries. Such insight can be used to better anticipate financial cycle developments and identify their implications for economic policy implementation.

With this in mind, the note describes the main spillover mechanisms and challenges linked to financial cycles, in general terms. It also presents the main characteristics of financial cycles in WAEMU countries, using loans to the economy as an indicator. Estimates based on quarterly data from 2004 to 2020 suggest that, apart from their magnitude, little variation can be seen in the main characteristics of financial cycles across WAEMU countries. Moreover, national financial cycles display a high degree of synchronicity, which is indicative of the financial integration of the Union's economies and is doubtless due to the monetary and banking union environment.

Based on these findings, the study hypothesizes that there is a Union-wide financial cycle that is conducive to the implementation of common macroprudential policies. The alignment of the phases of the Union's financial cycles could therefore foster a complementary role for monetary policy in mitigating the adverse macroeconomic consequences associated with financial instability.