Is the Franc Zone an Optimal Currency Area?

David Fielding and Kalvinder Shields

No 00/1, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: In this paper we modify the method of Blanchard and Quah (1989) in order to estimate a structural VAR model appropriate for a small open economy. In this way we identify shocks to output and prices in the members of the two monetary unions that make up the African CFA Franc Zone. The costs of monetary union membership will depend on the extent to which price and output shocks are correlated across countries, and the degree of similarity in the long run effects of the shocks on the macro-economy. The policy conclusions depend on the relative importance of different macroeconomic variables to policymakers, and the speed with which a policymaker is able to respond to a shock.

Keywords: Franc Zone; Optimal Currency Areas; Structural VAR Models (search for similar items in EconPapers)
JEL-codes: F33 F42 O11 O23 (search for similar items in EconPapers)
Date: 2000-01
New Economics Papers: this item is included in nep-ifn
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