Estimating Equilibrium Real Exchange Rates in the Franc Zone

Posted: 4 Aug 2008

See all articles by Simeon Coleman

Simeon Coleman

University of Leicester - Department of Economics

Date Written: August 2008

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.

Keywords: C33, F33, F42, P47

Suggested Citation

Coleman, Simeon, Estimating Equilibrium Real Exchange Rates in the Franc Zone (August 2008). Journal of African Economies, Vol. 17, Issue 4, pp. 600-634, 2008, Available at SSRN: https://ssrn.com/abstract=1194060 or http://dx.doi.org/ejm043

Simeon Coleman (Contact Author)

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

HOME PAGE: http://www.le.ac.uk/economics/staff/ecstaff.html#gta

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