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The CFA Arrangements--More than Just an Aid Substitute?

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Author Info
Etienne B. Yehoue
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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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/19.

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Length: 33 pages
Date of creation: 01 Feb 2007
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Handle: RePEc:imf:imfwpa:07/19

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Related research
Keywords: Monetary unions ; Africa ; Risk management ; Development assistance ; Fiscal policy ; Price stabilization ; International cooperation ;

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References listed on IDEAS
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  2. Paul R. Masson & Jacob A. Frenkel & Morris Goldstein, 1991. "Characteristics of a Successful Exchange Rate System," IMF Occasional Papers 82, International Monetary Fund.
  3. Sachs, Jeffrey & Sala-i-Martin, Xavier, 1992. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe from the United States," CEPR Discussion Papers 632, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Paul Masson & Catherine Pattillo, 2002. "Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies?," Journal of African Economies, Oxford University Press, vol. 11(3), pages 387-412, September.
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  7. Giavazzi, Francesco & Pagano, Marco, 1988. "The advantage of tying one's hands : EMS discipline and Central Bank credibility," European Economic Review, Elsevier, vol. 32(5), pages 1055-1075, June. [Downloadable!] (restricted)
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  8. Rose, Andrew K, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," CEPR Discussion Papers 2329, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. 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. [Downloadable!]
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