Estimating equilibrium real exchange rates in the franc zone

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Periodical article

Title:	Estimating equilibrium real exchange rates in the franc zone
Author:	Coleman, Simeon
Year:	2008
Periodical:	Journal of African Economies
Volume:	17
Issue:	4
Pages:	600-634
Language:	English
Geographic term:	French-speaking Africa
Subjects:	exchange rates franc zone 1950-1999
External link:	https://jae.oxfordjournals.org/content/17/4/600.full.pdf
Abstract:	This paper estimates the degree of real exchange rate misalignment in 12 CFA (Communauté financière africaine) franc zone countries over the period 1960-1999. Allowing for contemporaneous error co-variances, due to observed cross-sectional dependence, it uses seemingly unrelated regressions equation estimations to estimate the equilibrium real effective exchange rate and degree of misalignment in each country. The paper finds 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. The 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. App., bibliogr., notes, ref., sum. [Journal abstract]