Macroeconomic Fluctuations in Sub-Saharan Africa


Macroeconomic Fluctuations in Sub-Saharan Africa
by Alexander W. Hoffmaister, Jorge E. Roldos, and Peter Wickham

This paper focuses on the sources of macroeconomic fluctuations in sub.Saharan
Africa by measuring the relative importance of domestic versus external shocks
and by comparing CFA franc countries with non.CFA franc sub.Saharan Africa
countries during the past 20 years. CFA franc countries had maintained a fixed
parity vis-à-vis the French franc until the January 1994 devaluation of the CFA
franc, whereas many non.CFA franc countries had adjusted their exchange rates
more frequently or moved toward more flexible exchange arrangements; these two
groups of countries therefore provide an almost ideal experiment to test the
effects of alternative exchange rate regimes on the sources of macroeconomic

The evidence for sub.Saharan Africa suggests that domestic shocks are the main
source of macroeconomic fluctuations for both groups of countries. In
particular, supply shocks appear to be the major factor underlying output
fluctuations, even in the short run. Output responses to supply shocks in the
region, especially in the non.CFA franc sub.Saharan Africa countries, are in
line with those supply responses observed for other developing countries. The
sources of macroeconomic fluctuations in the CFA franc countries, however,
differ somewhat from the rest of sub.Saharan Africa as external shocks have had
a greater impact on output, the real exchange rate, and inflation in the CFA
franc countries than in the other sub.Saharan countries. Moreover, this higher
vulnerability to external shocks does not appear to reflect differences in the
structure of the CFA franc countries, as the structural differences that exist
are probably insufficient to explain the differences observed in macroeconomic
fluctuations. This result suggests that the implementation of the exchange rate
arrangement of the CFA franc countries prevented the exchange rate from playing
a substantive role as a partial buffer for external shocks.