Monetary Policy, Credibility and Asymmetries: Small African Countries and the EMU Advent

Nyembwe Andre
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Nyembwe Andre: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)

No 2003011, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: As a country sets a pig of its currency, the monetary policy credibility it expects to gain implies that the anti-inflationary performance has to be as similar as possible to the anchor country one. Failing to attain this goal can lead to speculative attacks against the currency parity. This is an insight from models of credibility in monetary policy through fixed exchange rates regimes. In addition, multiple equilibria embedded in these models may cause speculative attacks rendering the efficiency of exchange rate regimes questionable. Contrary to this theoretical insight, the franc zone continues to work despite the disinflation process in the European Union that is likely to increase the level of constraint related the use of the euro as an anchor. In this paper, we show how the existence of particular arrangements in the Franc zone allows for getting a framework without multiple equilibria and insures the stability of the system. Moreover, we introduce two kinds of structural asymmetries relative to African economies to show that without the “operations account” mechanismn, the EMU advent is likely to have increased the constraint related to a peg on the euro, leading to a more restraining peg

Keywords: Credibility; Monetary Policy; Exchange Rate Regime; EMU; International Monetary System; Exchange Rates (search for similar items in EconPapers)
JEL-codes: E58 F33 F41 (search for similar items in EconPapers)
Pages: 32
Date: 2003-07-01, Revised 2002-08-06
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-mon
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