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Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?

Cécile Couharde, Issiaka Coulibaly (), David Guerreiro () and Valérie Mignon ()

No 2012-34, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: This paper aims at explaining why the CFA countries have successfully maintained a currency union for several decades, despite failing to meet many of optimum currency area criteria. We suggest that the CFA zone, while not optimal, has been at least sustainable. We test this sustainability hypothesis by relying on the Behavioral Equilibrium Exchange Rate (BEER) approach. In particular, we assess and compare the convergence process of real exchange rates towards equilibrium for the CFA zone countries and a sample of other sub-Saharan African (SSA) countries. Our findings evidence that internal and external balances have been fostered and adjustments facilitated in the CFA zone as a whole—compared to other SSA countries—as well as in each of its member countries.

Keywords: Equilibrium exchange rates; CFA zone; Optimum Currency Areas; currency union sustainability (search for similar items in EconPapers)
JEL-codes: C23 F31 F33 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mon and nep-opm
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Journal Article: Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable? (2013) Downloads
Working Paper: Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable? (2013)
Working Paper: Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable? (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2012-34

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