We use a variety of frameworks to study the African monetary union known as the CFA franc zone, focusing on benefits and costs associated with membership.; The institutional structure of the franc zone, established in 1948, retains many of its initial attributes. This structure has helped produce remarkable stability, both in membership and in the value of the franc zone's fixed currency, which is pegged to the French franc. We develop a model of the franc zone using a game-theoretic framework which explains this stability. We introduce a multinational currency union that includes an important institutional feature of the franc zone, the requirement of unanimous agreement for changes in the nominal exchange rate. We find that this requirement leads to lower inflation and government spending levels.; We then perform two empirical investigations of the benefits and costs of franc zone membership. First, we estimate a Solow growth model to examine whether participation in the franc zone enhanced growth performance. Using a pan-African data set, we utilize dummy variables to capture the effects of franc zone membership on growth performance. The results provide evidence that franc zone membership actually hindered growth performance relative to other sub-Saharan countries.; Next, we examine the cost of membership in the franc zone by calculating real exchange rate (RER) misalignment in member countries. We model the long-run equilibrium real exchange rate (LRER) as a function of real fundamentals and estimate parameters for these fundamentals. Using these estimates, we construct the LRER for each franc zone country and calculate RER misalignment. We find that franc zone members suffered persistent RER overvaluation in the decade leading up to the 1994 CFA franc devaluation. The degree of misalignment varied between countries, and it was only after several consecutive years of misalignment among all countries that they unanimously agreed to devalue the CFA franc.
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