Estimating equilibrium real exchange rates in the Franc Zone

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Coleman, S., 2008. Estimating equilibrium real exchange rates in the Franc Zone. Journal of African Economies, 17 (4), pp. 600-634. ISSN 0963-8024

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Official URL: http://dx.doi.org/10.1093/jae/ejm043

Abstract

This paper estimates the degree of real exchange rate misalignment in 12 CFA (Communauté Financière Africaine) franc zone countries over the period 1960–99. Allowing for contemporaneous error co-variances, due to observed cross-sectional dependence, we use seemingly unrelated regressions equation estimations to estimate the equilibrium real effective exchange rate and degree of misalignment in each country. We find significant differences across member-states, however, the largest economies—Cameroon, Côte d'Ivoire and Senegal—showed some striking similarities. Just prior to the 1994 devaluation, these three economies were much more overvalued compared with the smaller member-states, some of which were either marginally misaligned or virtually in equilibrium. In 1994, only Côte d'Ivoire is exactly in equilibrium as a result of the devaluation. Our analysis of misalignment for the period after 1994 suggests that some challenges lie ahead for the CFA franc zone, if fixed parity is to be maintained.

Item Type:

Journal article

Description:

This is a pre-copy-editing, author-produced PDF of an article accepted for publication in Journal of African Economies following peer review. The definitive publisher-authenticated version [citation above] is available online at: http://jae.oxfordjournals.org/cgi/content/abstract/ejm043

Publication Title:

Journal of African Economies

Creators:

Coleman, S.

Publisher:

Oxford University Press on behalf of the Centre for the Study of African Economies

Date:

2008

Volume:

Number:

ISSN:

0963-8024