Real Exchange Rate Misalignment in the CFA Zone

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Periodical article

Title:	Real Exchange Rate Misalignment in the CFA Zone
Author:	Devarajan, Shantayanan
Year:	1997
Periodical:	Journal of African Economies
Volume:	6
Issue:	1
Pages:	35-53
Language:	English
Geographic terms:	French-speaking Africa Subsaharan Africa
Subjects:	franc zone exchange rates devaluation Economics and Trade
External link:	https://jae.oxfordjournals.org/content/6/1/35.full.pdf
Abstract:	How severely misaligned was the CFA franc before the devaluation of January 1994? How different was the degree of real exchange rate (RER) overvaluation in the various African countries in the CFA zone? And what has been the path of the RER in these countries after the devaluation? Using a method of calculating RER misalignment which explicitly incorporates terms of trade shocks and the distinction between tradable and nontradable goods, this paper estimates RER overvaluation in 12 countries of the CFA franc zone before and after the devaluation. The results show that prior to the devaluation, the RER was about 30 percent overvalued on average with sharp differences across the 12 countries. The larger oil producers (Cameroon and Gabon) were the most overvalued, while some of the smaller, landlocked countries (Chad and Burkina Faso) were much less so. One year after the devaluation, the RER was undervalued in a majority of countries, although the variation across countries remains, with Cameroon and Gabon still substantially overvalued. Bibliogr., notes, sum.