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Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?

  • Cécile Couharde
  • Issiaka Coulibaly
  • David Guerreiro
  • Valérie Mignon

This paper aims at explaining why the CFA countries have successfully maintained a currency union for several decades, despite failing to meet many of optimum currency area criteria. We suggest that the CFA zone, while not optimal, has been at least sustainable. We test this sustainability hypothesis by relying on the Behavioral Equilibrium Exchange Rate (BEER) approach. In particular, we assess and compare the convergence process of real exchange rates towards equilibrium for the CFA zone countries and a sample of other sub-Saharan African (SSA) countries. Our findings evidence that internal and external balances have been fostered and adjustments facilitated in the CFA zone as a whole—compared to other SSA countries—as well as in each of its member countries.

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File URL: http://economix.fr/pdf/dt/2012/WP_EcoX_2012-34.pdf
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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2012-34.

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Length: 29 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:drm:wpaper:2012-34
Contact details of provider: Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex
Web page: http://economix.fr
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  2. Cécile Couharde & Issiaka Coulibaly & Olivier Damette, 2011. "Misalignments and Dynamics of Real Exchange Rates in the CFA Franc Zone," EconomiX Working Papers 2011-28, University of Paris West - Nanterre la Défense, EconomiX.
  3. Coleman, Simeon, 2004. "An Aggregate View of Macroeconomic Shocks in Sub-Saharan Africa: A Comparative Study Using Innovation Accounting," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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  18. Yasser Abdih & Charalambos Tsangarides, 2010. "FEER for the CFA franc," Applied Economics, Taylor & Francis Journals, vol. 42(16), pages 2009-2029.
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