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Modeling Macroeconomic Shocks in the CFA Franc Zone

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  • David Fielding

    ()

  • 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 00/7.

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Date of creation: Jun 2000
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Handle: RePEc:lec:leecon:00/7

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

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References

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  1. Yeats, Alexander J, 1990. "On the Accuracy of Economic Observations: Do Sub-Saharan Trade Statistics Mean Anything?," World Bank Economic Review, World Bank Group, vol. 4(2), pages 135-56, May.
  2. Michel Galy & Michael T. Hadjimichael, 1997. "The CFA Franc Zone and the EMU," IMF Working Papers 97/156, International Monetary Fund.
  3. Shantayanan Devarajan & Dani Rodrik, 1991. "Do the Benefits of Fixed Exchange Rates Outweigh Their Costs? The Franc Zone in Africa," NBER Working Papers 3727, National Bureau of Economic Research, Inc.
  4. Fielding, David, 1996. "Asymmetries in the Behaviour of Members of a Monetary Union: A Game-Theoretic Model with an Application to West Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 5(3), pages 343-65, October.
  5. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  6. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  7. Fielding, David & Bleaney, Michael, 2000. "Monetary Discipline and Inflation in Developing Countries: The Role of the Exchange Rate Regime," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 521-38, July.
  8. Atish R. Ghosh, 1998. "Currency Boards," IMF Working Papers 98/8, International Monetary Fund.
  9. Bruno, Michael & Easterly, William, 1995. "Inflation crises and long-run growth," Policy Research Working Paper Series 1517, The World Bank.
  10. Allechi, M'Bet & Niamkey, Madeleine A., 1994. "Evaluating the net gains from the CFA Franc Zone membership: A different perspective," World Development, Elsevier, vol. 22(8), pages 1147-1160, August.
  11. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  12. Lowrey, Michael P, 1995. "France and the CFA: Price and Money Supply Growth Determination: 1969-88," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 4(2), pages 225-42, October.
  13. Stasavage, David, 1997. "The CFA Franc Zone and Fiscal Discipline," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(1), pages 132-67, March.
  14. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does the Nominal Exchange Rate Regime Matter?," NBER Working Papers 5874, National Bureau of Economic Research, Inc.
  15. Tornell, Aaron & Velasco, Andres, 1995. "Fiscal discipline and the choice of exchange rate regime," European Economic Review, Elsevier, vol. 39(3-4), pages 759-770, April.
  16. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  17. Boccara, Bruno & Devarajan, Shantayanan, 1993. "Determinants of inflation among franc zone countries in Africa," Policy Research Working Paper Series 1197, The World Bank.
  18. Diep Nuven, 1994. "Linkages in Price Level and Inflation Rate Between Cfa Franc Zone Countries and France," IMF Working Papers 94/93, International Monetary Fund.
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