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Is the CFA Franc Zone an Optimum Currency Area?

  • Zhao, Xiaodan
  • Kim, Yoonbai

Summary In this paper, we explore the features of the CFA franc zone and compare them to those of the Economic and Monetary Union (EMU) by operationalizing the criteria for an optimum currency area. A structural vector autoregression method is used in modeling national outputs as determined by global, regional, and country-specific shocks. We find that domestic outputs of the CFA franc zone countries are strongly influenced by country-specific shocks while regional shocks are far more important in European countries that have joined the EMU. The results suggest that the CFA franc zone countries are structurally different from each other and thus are more likely to be subjected to asymmetric shocks. They do not appear to form an optimum currency area and the monetary union may have been a costly arrangement for the member countries unless they are compensated with some other benefits.

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Article provided by Elsevier in its journal World Development.

Volume (Year): 37 (2009)
Issue (Month): 12 (December)
Pages: 1877-1886

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Handle: RePEc:eee:wdevel:v:37:y:2009:i:12:p:1877-1886
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