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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:France and the CFA: Price and Money Supply Growth Determination: 1969-88
Author:Lowrey, Michael P.
Periodical:Journal of African Economies
Geographic terms:French-speaking Africa
Subsaharan Africa
Subjects:franc zone
economic policy
Economics and Trade
international relations
Abstract:Over the past 40 plus years, a remarkable arrangement called the CFA has allowed a group of now 13 nations in Africa to maintain a convertible currency guaranteed by France with low rates of inflation. The CFA arrangement has been criticized as allowing an overvalued exchange rate arrangement to perpetuate itself for many years at great cost to zone members and France while producing, in recent years, lower rates of output growth than other comparable countries. The pegging relationship of the CFA to France implies a number of constraints and theoretical relationships. This paper determines whether the most interesting of these relationships, similar rates of inflation and money supply growth, holds. Using this and purchasing power parity (PPP) as a base, the paper also examines the issue of exchange rate overvaluation. The time period covered is from 1969 to 1988. Theory holds that inflation and money stock growth rates should be indistinguishable between France and the various CFA countries. Regression analysis confirms that the inflation rate in the CFA countries examined generally follows the predicted pattern while money supply data produces more mixed results. From this, it follows that there are no indications of an overvalued exchange between the CFA and France over the period covered. Bibliogr., notes, sum.