Feer for the Cfa Franc

42 Pages Posted: 13 Nov 2006

See all articles by Yasser Abdih

Yasser Abdih

International Monetary Fund (IMF)

Charalambos G. Tsangarides

International Monetary Fund (IMF)

Date Written: October 2006

Abstract

We apply the fundamentals equilibrium exchange rate (FEER) approach and the Johansen cointegration methodology to investigate the behavior of the real effective exchange rates of the two monetary unions of the CFA franc zone (CEMAC and WAEMU) vis-à-vis their long-run equilibrium paths. For both CEMAC and WAEMU, our results indicate that: (i) the fundamentals account for most of the fluctuation of the real effective exchange rates, with increases in the terms of trade, government consumption, and productivity improvements causing the exchange rate to appreciate, and increases in investment and openness leading to a depreciation; (ii) at end-2005 both the CEMAC and WAEMU real effective exchange rates were broadly in line with their long-run equilibrium values; and (iii) following a shock, reversion to equilibrium is twice as fast in WAEMU than in CEMAC.

JEL Classification: C32, C53, F31, F41

Suggested Citation

Abdih, Yasser and Tsangarides, Charalambos G., Feer for the Cfa Franc (October 2006). IMF Working Paper No. 06/236, Available at SSRN: https://ssrn.com/abstract=944074

Yasser Abdih

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Charalambos G. Tsangarides (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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