Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?
AbstractThis paper aims at explaining why the CFA countries have successfully maintained a currency union for several decades, despite failing to meet many of optimum currency area criteria. We suggest that the CFA zone, while not optimal, has been at least sustainable. We test this sustainability hypothesis by relying on the Behavioral Equilibrium Exchange Rate (BEER) approach. In particular, we assess and compare the convergence process of real exchange rates towards equilibrium for the CFA zone countries and a sample of other sub-Saharan African (SSA) countries. Our findings evidence that internal and external balances have been fostered and adjustments facilitated in the CFA zone as a whole—compared to other SSA countries—as well as in each of its member countries.
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Bibliographic InfoPaper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2012-34.
Length: 29 pages
Date of creation: 2012
Date of revision:
Equilibrium exchange rates; CFA zone; Optimum Currency Areas; currency union sustainability;
Other versions of this item:
- 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.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-AFR-2012-09-30 (Africa)
- NEP-ALL-2012-09-30 (All new papers)
- NEP-CBA-2012-09-30 (Central Banking)
- NEP-MON-2012-09-30 (Monetary Economics)
- NEP-OPM-2012-09-30 (Open Economy Macroeconomics)
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