Advanced Search
MyIDEAS: Login

Do the benefits of fixed exchange rates outweigh their costs? The Franc Zone in Africa

Contents:

Author Info

  • Devarajan, Shantayanan
  • Rodrik, Dani

Abstract

The authors develop a simple, formal framework for clarifying the tradeoffs involved in choosing between a fixed and flexible exchange rate system. They apply this framework to the countries of Africa's CFA Zone, which have maintained fixed parity with the French franc since independence. Because a few agricultural products and natural resources dominate their exports, member countries of Africa's CFA Zone have suffered frequent shocks in terms of trade. A flexible exchange rate could possibly have alleviated the costs of these external shocks. On the other hand, CFA member countries have managed to maintain lower inflation levels than their neighbors. The fixed exchange rate of the CFA Zone acts as a credible committment. The government"ties its own hands"so that it will not be tempted to use the exchange rate, thereby eliciting lower wage and price increases from the private sector. Weighing this benefit against the costs of nonadjustment to external shocks, the authors conclude that fixed exchange rates have been a bad bargain for the CFA member countries. These countries would have been better off having the ability to adjust to external shocks.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1991/10/01/000009265_3961002023135/Rendered/PDF/multi0page.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 777.

as in new window
Length:
Date of creation: 31 Oct 1991
Date of revision:
Handle: RePEc:wbk:wbrwps:777

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Environmental Economics&Policies; Macroeconomic Management; Fiscal&Monetary Policy; Economic Stabilization; Economic Theory&Research;

Other versions of this item:

References

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.:
as in new window
  1. Corden, W. Max, 1990. "Exchange rate policy in developing countries," Policy Research Working Paper Series 412, The World Bank.
  2. Boyer, Russell S, 1978. "Optimal Foreign Exchange Market Intervention," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1045-55, December.
  3. Devarajan, Shantayanan & de Melo, Jaime, 1987. "Evaluating participation in African monetary unions: A statistical analysis of the CFA Zones," World Development, Elsevier, vol. 15(4), pages 483-496, April.
  4. Fischer, Stanley, 1990. "Rules versus discretion in monetary policy," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 21, pages 1155-1184 Elsevier.
  5. Guillaumont, Patrick & Guillaumont, Sylviane & Plane, Patrick, 1988. "Participating in African monetary unions: An alternative evaluation," World Development, Elsevier, vol. 16(5), pages 569-576, May.
  6. Devarajan, Shantayanan & de Melo, Jaime, 1990. "Membership in the CFA zone : Odyssean journey or Trojan horse?," Policy Research Working Paper Series 482, The World Bank.
  7. Peter Montiel & Bijan B. Aghevli & Mohsin S. Khan, 1991. "Exchange Rate Policy in Developing Countries: Some Analytical Issues," IMF Occasional Papers 78, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Giorgio Barba Navaretti & Riccardo Faini & Bernard Gauthier, 2006. "The Impact of Trade Liberalization on Enterprises in Small Backward Economies: the Case of Chad and Gabon," Review of Development Economics, Wiley Blackwell, vol. 10(3), pages 452-465, 08.
  2. Rama, Martin, 1998. "Wage misalignment in CFA countries: are labor market policies to blame?," Policy Research Working Paper Series 1873, The World Bank.
  3. Tsangarides, Charalambos G. & Qureshi, Mahvash Saeed, 2008. "Monetary Union Membership in West Africa: A Cluster Analysis," World Development, Elsevier, vol. 36(7), pages 1261-1279, July.
  4. Aaron Tornell & Andres Velasco, 1995. "Fixed versus Flexible Exchange Rates: Which Provides More Fiscal Discipline?," NBER Working Papers 5108, National Bureau of Economic Research, Inc.
  5. 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.
  6. Aaron Tornell & Andrés Velasco, 1994. "Fiscal Discipline and the Choice of Exchange Rate Regime," Research Department Publications 4004, Inter-American Development Bank, Research Department.
  7. Sebastian Edwards & Fernando J. Losada, 1994. "Fixed Exchange Rates, Inflation and Macroeconomic Discipline," NBER Working Papers 4661, National Bureau of Economic Research, Inc.
  8. Tamgac, Unay, 2013. "Duration of fixed exchange rate regimes in emerging economies," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 439-467.
  9. Azam, Jean-Paul, 2004. "Poverty and Growth in the WAEMU after the 1994 Devaluation," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  10. Sebastian Edwards, 1993. "Exchange Rates, Inflation and Disinflation: Latin American Experiences," NBER Working Papers 4320, National Bureau of Economic Research, Inc.
  11. Kuikeu, Oscar, 2011. "Arguments contre la zone franc
    [Against the cfa franc zone]
    ," MPRA Paper 33710, University Library of Munich, Germany.
  12. Chris Canavan & Mariano Tommasi, 1997. "Visibility and Credibility in the Political Economy of Reform," Boston College Working Papers in Economics 346., Boston College Department of Economics.
  13. Aaron Tornell & Andrés Velasco, 1994. "La disciplina fiscal y la elección de régimen cambiario," Research Department Publications 4005, Inter-American Development Bank, Research Department.
  14. Sebastian Edwards, 1992. "Exchange Rates as Nominal Anchors," NBER Working Papers 4246, National Bureau of Economic Research, Inc.
  15. Magazzino, Cosimo, 2012. "Revenue and expenditure nexus: A case study of ECOWAS," Economics Discussion Papers 2012-57, Kiel Institute for the World Economy.
  16. Chantal Dupasquier & Patrick N. Osakwe & Shandre M. Thangavelu, 2005. "Choice of Monetary and Exchange Regimes in ECOWAS : An Optimum Currency Area Analysis," Macroeconomics Working Papers 22570, East Asian Bureau of Economic Research.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:777. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.