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Fixed Exchange Rates and the Autonomy of Monetary Policy: The Franc Zone Case

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Author Info
Romain Veyrune
Abstract

This paper compares monetary policy of currency boards with that of the franc zone during the period 1956-2005. It concludes that monetary policy in the zone was more autonomous than under a currency board, even though both systems faced the same exchange rate constraint. So far, the contingency line provided by the French treasury and capital controls have allowed the zone to combine a fixed exchange rate and a relatively autonomous monetary policy. Financial development and zone enlargement would challenge this relative autonomy for two reasons: (1) the potential cost to the French treasury would increase; and (2) residents would potentially be able to avoid capital controls. For the zone to maintain its fixed exchange rate, close targeting of foreign reserves would become important.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/34.

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Length: 23 pages
Date of creation: 21 Feb 2007
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Handle: RePEc:imf:imfwpa:07/34

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Keywords: Exchange rate policy ; Monetary unions ; Currency boards ; Monetary policy ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring. [Downloadable!] (restricted)
  2. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2005. "The Trilemma in History: Tradeoffs Among Exchange Rates, Monetary Policies, and Capital Mobility," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 423-438, December. [Downloadable!] (restricted)
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  3. Anja Shortland & David Stasavage, 2004. "What Determines Monetary Policy in the Franc Zone? Estimating a Reaction Function for the BCEAO," Journal of African Economies, Oxford University Press, vol. 13(4), pages 518-535, December.
  4. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 300-351, February. [Downloadable!] (restricted)
  5. Oral Williams & Tracy Polius & Hazel Selvon, 2001. "Reserve Pooling in the Eastern Caribbean Currency Union and the CFA Franc Zone: A Comparative Analysis," IMF Working Papers 01/104, International Monetary Fund. [Downloadable!]
  6. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
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  7. Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004. "Global transmission of interest rates: monetary independence and currency regime," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 701-733, September. [Downloadable!] (restricted)
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  8. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2000. "Currency boards: More than a quick fix?," Economic Policy, CEPR, CES, MSH, vol. 15(31), pages 269-335, October. [Downloadable!] (restricted)
  9. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Rose, Andrew K., 1996. "Explaining exchange rate volatility: an empirical analysis of 'the holy trinity' of monetary independence, fixed exchange rates, and capital mobility," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 925-945, December. [Downloadable!] (restricted)
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  1. Nienke Oomes & Christopher M. Meissner, 2008. "Why Do Countries Peg the Way They Peg?The Determinants of Anchor Currency Choice," IMF Working Papers 08/132, International Monetary Fund. [Downloadable!]
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