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Estimation of Equilibrium Exchange Rates in the Waemu

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Author Info

  • Magnus Saxegaard
  • Stéphane Roudet
  • Charalambos G. Tsangarides

Abstract

Using the FEER approach we investigate the long-run equilibrium paths of the real effective exchange rates (REERs) of countries in the West African Economic and Monetary Union (WAEMU). In an attempt to address econometric estimation uncertainty, we employ both single-country (Johansen and ARDL) and panel-data (FMOLS and PMG) cointegration techniques. We find that (i) much of the long-run behavior of REERs in WAEMU countries can be explained by fluctuations in terms of trade, government consumption, investment, and productivity; (ii) the use of different econometric techniques suggests that there is significant uncertainty about the path of the underlying equilibrium REERs and the degree of exchange rate misalignment, which underscores the need for robustness analyses in exchange rate modeling; and (iii) results from panel-data cointegration may sometimes be useful, but should always be complemented with single-country estimations to ensure that the results take into account country-specific characteristics.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/194.

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Length: 54
Date of creation: 01 Aug 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/194

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Keywords: West African Economic and Monetary Union; Exchange rates; Real effective exchange rates; cointegration; exchange rate; statistic; equation; equilibrium exchange rate; statistics; real exchange rate; equations; logarithm; econometrics; real exchange rates; exchange rate misalignment; effective exchange rate; real effective exchange rate; time series; mean group; dummy variables; effective exchange rates; nominal exchange rate; significance level; estimation method; exchange rate developments; predictions; fixed exchange rate; correlation; statistical significance; constant term; covariance; fixed exchange rate regimes; exchange rate regimes; statistical analysis; empirical model; measurement errors; rate of change; exchange rate misalignments; statistical models; samples; asymptotic distribution; estimation of long-run relationships; maximum likelihood estimator; mean group estimation; exchange rate movements; statistical error; mean group estimator; maximum likelihood estimation; survey; instrumental variable; current account balance; number of parameters; exchange rate adjustment; foreign exchange; degree of heterogeneity; extrapolation; functional form; missing observations; standard deviation; applied sciences; adjustment path; hypothesis testing; random walks; outliers; foreign exchange market; exchange rate action;

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References

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  1. Yasser Abdih & Charalambos Tsangarides, 2010. "FEER for the CFA franc," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 42(16), pages 2009-2029.
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  7. MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
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Citations

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Cited by:
  1. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 463-482.
  2. 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.
  3. Eberechukwu UNEZE, 2011. "Foreign Aid And The Real Exchange Rate In The West African Economic And Monetary Union (Waemu)," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 11(1).
  4. Lone Christiansen & Alessandro Prati & Luca Antonio Ricci & Thierry Tressel, 2010. "External Balance in Low-Income Countries," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER International Seminar on Macroeconomics 2009, pages 265-322 National Bureau of Economic Research, Inc.
  5. Andrew Berg & Yanliang Miao, 2010. "The Real Exchange Rate and Growth Revisited," IMF Working Papers 10/58, International Monetary Fund.
  6. Eberechukwu UNEZE, 2011. "Foreign Aid And The Real Exchange Rate In The West African Economic And Monetary Union (Waemu)," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 11(2).
  7. 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.
  8. Chandra, Vandana & Osorio Rodarte, Israel, 2009. "Options for Income-Enhancing Diversification in Burkina Faso," MPRA Paper 20928, University Library of Munich, Germany.
  9. Magazzino, Cosimo, 2012. "Revenue and expenditure nexus: A case study of ECOWAS," Economics Discussion Papers 2012-57, Kiel Institute for the World Economy.
  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. Corinne Deléchat & Matthew Gaertner, 2008. "Exchange Rate Assessment in a Resource-Dependent Economy," IMF Working Papers 08/83, International Monetary Fund.

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