FEER for the CFA Franc

IMF Working Papers, October 1, 2006

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FEER for the CFA Franc

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Bibliographic details

• Authors: Charalambos G Tsangarides, Yasser Abdih
• Published: October 1, 2006
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451864960.001

Methodology and Scope

• Applied the fundamentals equilibrium exchange rate (FEER) approach and the Johansen cointegration methodology.
• Investigates the behavior of the real effective exchange rates (REERs) of the two monetary unions of the CFA franc zone: CEMAC and WAEMU, vis-à-vis their long-run equilibrium paths.
• Subjects: Econometric analysis, Exchange rates, Foreign exchange, Government consumption, National accounts, Real effective exchange rates, Real exchange rates, Vector autoregression.

Key Findings

• Fundamentals account for most of the fluctuation of the real effective exchange rates for both CEMAC and WAEMU.
• Determinants and their effects on the REER:
  • Increases in the terms of trade cause the exchange rate to appreciate.
  • Increases in government consumption cause the exchange rate to appreciate.
  • Productivity improvements cause the exchange rate to appreciate.
  • Increases in investment lead to a depreciation.
  • Increases in openness lead to a depreciation.
• At end-2005 both the CEMAC and WAEMU real effective exchange rates were broadly in line with their long-run equilibrium values.
• Following a shock, reversion to equilibrium is twice as fast in WAEMU than in CEMAC.

Content in this bundle

• Appendix A: The CFA Franc Zone
  • Appendix A: The CFA Franc Zone (Markdown version)
  • Appendix A: The CFA Franc Zone (PDF)