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FEER for the CFA Franc

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Author Info

  • Charalambos G. Tsangarides
  • Yasser Abdih

Abstract

We apply the fundamentals equilibrium exchange rate (FEER) approach and the Johansen cointegration methodology to investigate the behavior of the real effective exchange rates of the two monetary unions of the CFA franc zone (CEMAC and WAEMU) vis-Ã -vis their long-run equilibrium paths. For both CEMAC and WAEMU, our results indicate that: (i) the fundamentals account for most of the fluctuation of the real effective exchange rates, with increases in the terms of trade, government consumption, and productivity improvements causing the exchange rate to appreciate, and increases in investment and openness leading to a depreciation; (ii) at end-2005 both the CEMAC and WAEMU real effective exchange rates were broadly in line with their long-run equilibrium values; and (iii) following a shock, reversion to equilibrium is twice as fast in WAEMU than in CEMAC.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/236.

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Length: 40
Date of creation: 01 Oct 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/236

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Keywords: Exchange rates; Economic models; exchange rate; cointegration; effective exchange rate; real exchange rate; real effective exchange rate; real exchange rates; equilibrium exchange rate; statistic; equation; statistics; effective exchange rates; real effective exchange rates; logarithm; dummy variables; equations; nominal exchange rate; samples; significance level; nominal effective exchange rate; exchange rate adjustment; time series; exchange rates index; fixed exchange rate; econometrics; predictions; exchange rate paths; statistical significance; dummy variable; fixed exchange rate regimes; probabilities; outliers; constant term; exchange rate regimes; statistical methodology; confidence interval; probability; real exchange rate paths; optimization; standard errors; empirical estimation; linear trend; rate of change; standard deviations; exchange rate system; simultaneous equation; exchange rate behavior; random walks; correlation; exchange rate misalignment; exchange rate movements; covariance; exchange rate deviations; fixed nominal exchange rate; dual exchange rate; foreign exchange; current account balance; polynomial; adjustment path; minimization; significance levels; statistical analysis; standard deviation; equilibrium equation; exchange rate action; real exchange rate series; hypothesis testing; sample size; exchange rate policy;

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References

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Citations

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Cited by:
  1. Elena Loukoianova & Plamen Iossifov, 2007. "Estimation of a Behavioral Equilibrium Exchange Rate Model for Ghana," IMF Working Papers 07/155, International Monetary Fund.
  2. Carl Grekou, 2014. "Revisiting the nexus between currency misalignments and growth in the CFA Zone," EconomiX Working Papers 2014-4, University of Paris West - Nanterre la Défense, EconomiX.
  3. Samuel GUERINEAU & Sylviane GUILLAUMONT JEANNENEY, 2007. "Can domestic debt contribute to the financing of the “Millennium Development Goals” ? The case of the West African Economic and Monetary Union (WAEMU)," Working Papers 200720, CERDI.
  4. Magnus Saxegaard & Stéphane Roudet & Charalambos G. Tsangarides, 2007. "Estimation of Equilibrium Exchange Rates in the Waemu," IMF Working Papers 07/194, International Monetary Fund.
  5. Couharde, Cécile & Coulibaly, Issiaka & Damette, Olivier, 2013. "Anchor currency and real exchange rate dynamics in the CFA Franc zone," Economic Modelling, Elsevier, vol. 33(C), pages 722-732.
  6. Lendjoungou, Francis, 2009. "Competitiveness and the real exchange rate: the standpoint of countries in the CEMAC zone," MPRA Paper 17053, University Library of Munich, Germany.
  7. Asongu Simplice, 2013. "REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union," Working Papers 13/030, African Governance and Development Institute..
  8. 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.
  9. Martin Hallet, 2008. "The role of the euro in Sub-Saharan Africa and in the CFA franc zone," European Economy - Economic Papers 347, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  10. Cécile Couharde & Issiaka Coulibaly & Olivier Damette, 2011. "Misalignments and Dynamics of Real Exchange Rates in the CFA Franc Zone," EconomiX Working Papers 2011-28, University of Paris West - Nanterre la Défense, EconomiX.
  11. Charalambos G. Tsangarides & Gustavo Ramirez, 2007. "Competitiveness in the CFA Franc Zone," IMF Working Papers 07/212, International Monetary Fund.
  12. Fadia Al Hajj & Gilles Dufrénot, & Kimiko Sugimoto & Romain Wolf, 2013. "Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Ghana, South Africa and the WAEMU," William Davidson Institute Working Papers Series wp1062, William Davidson Institute at the University of Michigan.
  13. Yougbaré, Lassana, 2011. "Exchange rate arrangements and misalignments: contrasting words and deeds," MPRA Paper 32362, University Library of Munich, Germany.
  14. Joannes Mongardini & Alexander Chudik, 2007. "In Search of Equilibrium," IMF Working Papers 07/90, International Monetary Fund.
  15. Mahvash Saeed Qureshi, 2008. "Africa's Oil Abundance and External Competitiveness," IMF Working Papers 08/172, International Monetary Fund.
  16. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, vol. 32(C), pages 463-482.
  17. 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.
  18. Emilio Pineda & Paul Cashin & Yan Sun, 2009. "Assessing Exchange Rate Competitiveness in the Eastern Caribbean Currency Union," IMF Working Papers 09/78, International Monetary Fund.

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