Misalignments and Dynamics of Real Exchange Rates in the CFA Franc Zone
AbstractIn this paper, we analyse currencies' misalignments of the CFA zone countries and the adjustment process of their real effective exchange rates towards their equilibrium level over the period 1985-2007. To this end, we firstly estimate, using panel cointegration techniques, a long term relationship between the real effective exchange rate and economic fundamentals. Secondly, we estimate a panel smooth transition error correction model in order to take into account non linearities in the convergence process of real exchange rates towards their equilibrium level. Two main results emerge from our analysis. Firstly, the real appreciation of effective exchange rates in the CFA zone countries from the 2000s did not translate, in 2007, into a real overvaluation comparable to that occurring before the devaluation of the CFA franc in 1994. However, some countries are exceptions, indicating a strong heterogeneity within the CFA zone. Finally, the convergence process of real effective exchange rates towards their equilibrium level also differs substantially between country groups. These results tend to show the difficulty to apply a single exchange rate policy in the CFA zone and rather call for further coordination and policy harmonization between the countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2011-28.
Length: 36 pages
Date of creation: 2011
Date of revision:
CFA zone; misalignments; panel smooth transition model;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- F31 - International Economics - - International Finance - - - Foreign Exchange
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-07 (All new papers)
- NEP-MON-2011-11-07 (Monetary Economics)
- NEP-OPM-2011-11-07 (Open Economy Macroeconomic)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pedroni, Peter, 1999.
" Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
- Peter Pedroni, 1999. "Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Department of Economics Working Papers 2000-02, Department of Economics, Williams College.
- Jose De Gregorio & Holger C. Wolf, 1994.
"Terms of Trade, Productivity, and the Real Exchange Rate,"
NBER Working Papers
4807, National Bureau of Economic Research, Inc.
- Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," Working Papers 94-19, New York University, Leonard N. Stern School of Business, Department of Economics.
- Magnus Saxegaard & StÃ©phane Roudet & Charalambos G. Tsangarides, 2007. "Estimation of Equilibrium Exchange Rates in the WAEMU: A Robustness Approach," IMF Working Papers 07/194, International Monetary Fund.
- Hansen, Bruce E., 1999.
"Threshold effects in non-dynamic panels: Estimation, testing, and inference,"
Journal of Econometrics,
Elsevier, vol. 93(2), pages 345-368, December.
- Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
- Tom Doan, . "RATS programs to replicate Hansen's example of threshold break in panel data," Statistical Software Components RTZ00088, Boston College Department of Economics.
- Tom Doan, . "PANELTHRESH: RATS procedure to analyze up to two threshold breaks in a fixed effects panel model," Statistical Software Components RTS00152, Boston College Department of Economics.
- Pesaran, M. Hashem, 2004.
"General Diagnostic Tests for Cross Section Dependence in Panels,"
IZA Discussion Papers
1240, Institute for the Study of Labor (IZA).
- M. Hashem Pesaran, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," CESifo Working Paper Series 1229, CESifo Group Munich.
- Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.
- Virginie Coudert & Cécile Couharde & Valérie Mignon, 2011.
"Does Euro or Dollar Pegging Impact the Real Exchange Rate? The Case of Oil and Commodity Currencies,"
The World Economy,
Wiley Blackwell, vol. 34(9), pages 1557-1592, 09.
- Virginie Coudert & Cécile Couharde & Valérie Mignon, 2008. "Do Terms of Trade Drive Real Exchange Rates? Comparing Oil and Commodity Currencies," Working Papers 2008-32, CEPII research center.
- Charalambos G. Tsangarides & Yasser Abdih, 2006.
"FEER for the CFA Franc,"
IMF Working Papers
06/236, International Monetary Fund.
- Joannes Mongardini & Alexander Chudik, 2007. "In Search of Equilibrium: Estimating Equilibrium Real Exchange Rates in Sub-Saharan African Countries," IMF Working Papers 07/90, International Monetary Fund.
- Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003.
"Commodity Currencies and the Real Exchange Rate,"
Working Papers Central Bank of Chile
236, Central Bank of Chile.
- Peter Pedroni, 2004.
"Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis,"
Department of Economics Working Papers
2004-15, Department of Economics, Williams College.
- Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
- Hinkle, Lawrence E. & Monteil, Peter J. (ed.), 1999. "Exchange Rate Misalignment: Concepts and Measurement for Developing Countries," OUP Catalogue, Oxford University Press, number 9780195211269.
- González, Andrés & Teräsvirta, Timo & van Dijk, Dick, 2005.
"Panel Smooth Transition Regression Models,"
Working Paper Series in Economics and Finance
604, Stockholm School of Economics.
- Béreau, Sophie & Villavicencio, Antonia López & Mignon, Valérie, 2010.
"Nonlinear adjustment of the real exchange rate towards its equilibrium value: A panel smooth transition error correction modelling,"
Elsevier, vol. 27(1), pages 404-416, January.
- Sophie Béreau & Antonia Lopez Villavicencio & Valérie Mignon, 2008. "Nonlinear Adjustment of the Real Exchange Rate Towards its Equilibrium Value: a Panel Smooth Transition Error Correction Modelling," Working Papers 2008-23, CEPII research center.
- Ibrahim A. Elbadawi & Raimundo Soto, .
"Real Exchange Rates and Macroeconomic Adjustment in Sub-Sahara Africa and Other Developing Countries,"
ILADES-Georgetown University Working Papers
inv093, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Elbadawi, Ibrahim A & Soto, Raimundo, 1997. "Real Exchange Rates and Macroeconomic Adjustment in Sub-Saharan Africa and Other Developing Countries," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 74-120, Supplemen.
- Antonia López-Villavicencio & Valérie Mignon, 2009. "On Equilibrium Exchange Rates: Is Emerging Asia Different?," Working Papers 2009-38, CEPII research center.
- Westerlund, Joakim & Edgerton, David L., 2007. "A panel bootstrap cointegration test," Economics Letters, Elsevier, vol. 97(3), pages 185-190, December.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995.
"Testing for Unit Roots in Heterogeneous Panels,"
Cambridge Working Papers in Economics
9526, Faculty of Economics, University of Cambridge.
- Burcu Aydin, 2010. "Exchange Rate Assessment for Sub-Saharan Economies," IMF Working Papers 10/162, International Monetary Fund.
- Antonia López Villavicencio, 2006.
"Real equilibrium exchange rates. A panel data approach for advanced and emerging economies,"
wpdea0605, Department of Applied Economics at Universitat Autonoma of Barcelona.
- Antonia Lopez Villavicencio, 2006. "Real Equilibrium Exchange Rates: a Panel Data Approach for Advanced and Emerging Economies," Economie Internationale, CEPII research center, issue 108, pages 59-81.
- Ibrahim A. Elbadawi & Linda Kaltani & Raimundo Soto, 2009. "Aid, Real Exchange Rate Misalignment and Economic Performance in Sub-Saharan Africa," Documentos de Trabajo 368, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Joannes Mongardini & Brett Rayner, 2009. "Grants, Remittances, and the Equilibrium Real Exchange Rate in Sub-Saharan African Countries," IMF Working Papers 09/75, International Monetary Fund.
- Cécile Couharde & Issiaka Coulibaly & David Guerreiro & Valérie Mignon, 2012.
"Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?,"
EconomiX Working Papers
2012-34, University of Paris West - Nanterre la Défense, EconomiX.
- Couharde, Cécile & Coulibaly, Issiaka & Guerreiro, David & Mignon, Valérie, 2013. "Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 428-441.
- Cécile Couharde & Issiaka Coulibaly & David Guerreiro & Valérie Mignon, 2012. "Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?," Working Papers 2012-13, CEPII research center.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Valérie Mignon).
If references are entirely missing, you can add them using this form.