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Real Exchange Rate Misalignment in the CFA Zone

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  • Devarajan, Shantayanan
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    Abstract

    Using a method of calculating real exchange rate (RER) misalignment which explicitly incorporates terms of trade shocks and the distinction between tradable and non tradable goods, this paper estimates RER overvaluation in 12 countries of the CFA franc zone before and after the 1994 devaluation of the CFA franc. The results show that prior to the devaluation, the RER was about 30% overvalued on average with sharp differences across the 12 countries. The larger oil producers (Cameroon and Gabon) were the most overvalued, while some of the smaller, landlocked countries (Chad and Burkina Faso) were much less so. The estimates appear to be robust to the choice of base year and the two elasticities of the model. One year after the devaluation, the RER was undervalued in a majority of countries, although the variation across countries remains, with Cameroon and Gabon still substantially overvalued. Copyright 1997 by Oxford University Press.

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    Bibliographic Info

    Article provided by Centre for the Study of African Economies (CSAE) in its journal Journal of African Economies.

    Volume (Year): 6 (1997)
    Issue (Month): 1 (March)
    Pages: 35-53

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    Handle: RePEc:oup:jafrec:v:6:y:1997:i:1:p:35-53

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    Cited by:
    1. Devarajan, Shantayanan & Go, Delfin S. & Hongyi Li, 1999. "Quantifying the fiscal effects of trade reform," Policy Research Working Paper Series 2162, The World Bank.
    2. Devarajan, Shantayanan & Go, Delfin S. & Page, John & Robinson, Sherman & Thierfelder, Karen, 2008. "Aid, growth, and real exchange rate dynamics," Policy Research Working Paper Series 4480, The World Bank.
    3. Khalid Sekkat & Aristomene Varoudakis, 2000. "Exchange rate management and manufactured exports in Sub-Saharan Africa," ULB Institutional Repository 2013/7342, ULB -- Universite Libre de Bruxelles.
    4. Shatz, Howard J. & Tarr, David G., 2000. "Exchange rate overvaluation and trade protection - lessons from experience," Policy Research Working Paper Series 2289, The World Bank.
    5. Schröder, Marcel, 2013. "Should developing countries undervalue their currencies?," Journal of Development Economics, Elsevier, vol. 105(C), pages 140-151.
    6. Ngongang, Elie, 2011. "Impact of Exchange Rate Policy on the Trade of Industrial Products in Sub-Saharan Africa from 1975 to 2007," Review of Applied Economics, Review of Applied Economics, vol. 7(1-2).
    7. Devarajan, Shantayanan & Robinson, Sherman, 2002. "The influence of computable general equilibrium models on policy," TMD discussion papers 98, International Food Policy Research Institute (IFPRI).
    8. Bouoiyour, jamal & Kuikeu, Oscar, 2007. "Pertinence de la dévaluation du Franc CFA de janvier 1994 : Une évaluation par le taux de change réel d’équilibre. Cas de l’économie camerounaise
      [Relevance of the CFA France devaluation i
      ," MPRA Paper 31357, University Library of Munich, Germany.
    9. Marcel Schröder, 2013. "Should developing countries undervalue their currencies?," Departmental Working Papers 2013-12, The Australian National University, Arndt-Corden Department of Economics.
    10. Shehu Usman Rano, Aliyu, 2008. "Real Exchange Rate Misalignment: An Application of Behavioral Equilibrium Exchange Rate (BEER) to Nigeria," MPRA Paper 10343, University Library of Munich, Germany.
    11. Freund, Caroline & Pierola, Martha Denisse, 2008. "Export surges : the oower of a competitive currency," Policy Research Working Paper Series 4750, The World Bank.
    12. Kuikeu, Oscar, 2011. "Arguments contre la zone franc
      [Against the cfa franc zone]
      ," MPRA Paper 33710, University Library of Munich, Germany.
    13. Devarajan, Shantayanan & Robinson, Sherman, 2013. "Contribution of Computable General Equilibrium Modeling to Policy Formulation in Developing Countries," Handbook of Computable General Equilibrium Modeling, Elsevier.
    14. Blaise Gnimassoun, 2012. "Taux de change et mésalignements du franc CFA avant et après l’introduction de l’euro," EconomiX Working Papers 2012-3, University of Paris West - Nanterre la Défense, EconomiX.
    15. Sosthène Ulrich GNANSOUNOU & Audrey Chouchane, 2013. "Working Paper 166 - Misalignment of Real Effective Exchange Rates: When Should the Franc CFA be Devalued Again?," Working Paper Series 445, African Development Bank.
    16. Kuikeu, Oscar, 2011. "Comment la dernière crise financière a relancé le débat relatif à l'arrimage du fcfa à l'euro
      [How the recent financial crisis have revived the debate on the parity between fcfa and euro]
      ," MPRA Paper 32077, University Library of Munich, Germany.
    17. Dessus, Sebastien & Diaz Sanchez, Jose Luis & Varoudakis, Aristomene, 2013. "Fiscal rules and the pro-cyclicality of public investment in the West African economic and monetary union," Policy Research Working Paper Series 6562, The World Bank.

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