A1 - Cécile Couharde
A1 - Issiaka Coulibaly
A1 - David Guerreiro
A1 - Valérie Mignon
TI - Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?
IS - 2012-13
T3 - Working Papers
KW - Equilibrium exchange rates
KW - CFA zone
KW - Optimum Currency Areas
KW - currency union sustainability
N2 - 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 ember countries.
ER -