Optimal reserves in the franc zone: an empirical analysis

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Periodical article

Title:	Optimal reserves in the franc zone: an empirical analysis
Author:	Davies, Charles Nana
Year:	2012
Periodical:	African Development Review (ISSN 1467-8268)
Volume:	24
Issue:	1
Pages:	1-17
Language:	English
Geographic term:	West Africa
Subjects:	franc zone foreign exchange capital
External link:	https://onlinelibrary.wiley.com/doi/10.1111/j.1467-8268.2011.00301.x/pdf
Abstract:	The franc zone is an institutional exchange rate regime under the aegis of France and includes the Comoros and two monetary unions: the Central Africa Economic Monetary Community (CAEMC) and the West Africa Monetary Union (WAEMU). The CAEMC members include Cameroon, Central African Republic, Congo, Gabon, Equatorial Guinea (joined in 1985) and Chad. The members of the WAEMU are Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau (joined in 1997), Mali, Niger, Senegal and Togo. The Comoros joined the franc zone in 1979. This paper assesses the optimal reserves in franc zone countries (FZC). First, an EMP crisis index of the cross exchange rate between the CFA franc and the US dollar is constructed and its frequency is computed in a sample of eleven countries over the period 1980-2003. Subsequently, the estimated crisis probability is fed into a calibrated model economy of FZC to compute the optimal reserves to output ratio. The author finds that actual reserves are mostly lower than the implied optimal reserves. App., bibliogr., notes, ref., sum. [Journal abstract, edited]