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Is the Franc Zone an Optimal Currency Area?

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  • David Fielding

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  • Kalvinder Shields

Abstract

In this paper we modify the method of Blanchard and Quah (1989) in order to estimate a structural VAR model appropriate for a small open economy. In this way we identify shocks to output and prices in the members of the two monetary unions that make up the African CFA Franc Zone. The costs of monetary union membership will depend on the extent to which price and output shocks are correlated across countries, and the degree of similarity in the long run effects of the shocks on the macro-economy. The policy conclusions depend on the relative importance of different macroeconomic variables to policymakers, and the speed with which a policymaker is able to respond to a shock.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 00/1.

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Date of creation: Jan 2000
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Handle: RePEc:lec:leecon:00/1

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Related research

Keywords: Franc Zone; Optimal Currency Areas; Structural VAR Models;

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Cited by:
  1. Simeon Coleman, 2008. "Inflation persistence in the Franc Zone: evidence from disaggregated prices," Working Papers, Nottingham Trent University, Nottingham Business School, Economics Division 2008/16, Nottingham Trent University, Nottingham Business School, Economics Division.

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