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The CFA Arrangements

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  • Etienne B. Yehoue
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    Abstract

    The CFA franc zone has had one of the longest experiences with a fixed exchange rate for a convertible currency and regional integration of any group of developing countries. France, the anchor country, provides aid to support the zone. This paper asks whether the arrangements are more than just an aid substitute. The paper addresses this issue by evaluating the overall performance of the zone over the period 1960-2004. The analysis reveals that when the zone is hit by a negative shock, France increases its aid, thereby acting as a shock absorber. However, it also finds that the zone displays strong performance in two areas-price stability and fiscal policy. Thus the paper concludes that the arrangements are not an aid substitute; they have real macroeconomic value for the zone and complement aid.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/19.

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    Length: 33
    Date of creation: 01 Jan 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/19

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    Related research

    Keywords: Trade; Risk management; Price stabilization; International cooperation; inflation; terms of trade; price stability; terms of trade shocks; average inflation; monetary union; inflation rate; trade shocks; exchange rate regime; monetary unions; monetary policy; annual inflation; world exports; optimum currency areas; low inflation; annual inflation rate; inflation rates; open economies; gdp deflator; high inflation; regional trade; world economy; political economy; agricultural commodities; external shocks; member country; regional integration; reserve holdings; bilateral aid; monetary economics; price fluctuations; trade values; domestic economy; political costs; real value; trade performance; terms of trade shock; trade shock; world prices; tradable goods; asymmetric shocks; trade arrangements; bilateral trade; market integration; economic community; regional trade arrangements; macroeconomic performance; domestic shocks; average inflation rate; exchange rate policy; monetary integration; export earnings;

    This paper has been announced in the following NEP Reports:

    References

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    1. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
    2. Rose, Andrew, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," Seminar Papers 678, Stockholm University, Institute for International Economic Studies.
    3. Paul R. Masson & Morris Goldstein & Jacob A. Frenkel, 1991. "Characteristics of a Successful Exchange Rate System," IMF Occasional Papers 82, International Monetary Fund.
    4. Williamson, John, 1982. "A survey of the literature on the optimal peg," Journal of Development Economics, Elsevier, vol. 11(1), pages 39-61, August.
    5. Catherine A. Pattillo & Paul R. Masson, 2001. "Monetary Union in West Africa," IMF Working Papers 01/34, International Monetary Fund.
    6. Giavazzi, Francesco & Pagano, Marco, 1986. "The Advantages of Tying One's Hands: EMS Discipline and Central Bank Credibility," CEPR Discussion Papers 135, C.E.P.R. Discussion Papers.
    7. Benjamin J. Cohen, 1993. "Beyond Emu: The Problem Of Sustainability," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 187-203, 07.
    8. Paul Masson & Catherine Pattillo, 2002. "Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(3), pages 387-412, September.
    9. Frankel, Jeffrey A & Rose, Andrew K, 2000. "An Estimate of the Effect of Currency Unions on Trade and Output," CEPR Discussion Papers 2631, C.E.P.R. Discussion Papers.
    10. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," Working Papers 2004-05, Department of Economics, University of Houston.
    11. Aaron Tornell & Andres Velasco, 1995. "Fixed versus Flexible Exchange Rates: Which Provides More Fiscal Discipline?," NBER Working Papers 5108, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Carsten Hefeker, 2010. "Fiscal reform and monetary union in West Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(1), pages 86-102.

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