The macroeconomics of the monetary union of sub-Saharan Africa, the CFA franc zone

摘要

This thesis assesses the extent of macroeconomic convergence among the countries that make up the CFA Franc zone. The analysis addresses the following issues: (i) Do the CFA Franc zone countries differ in the ways they respond to macroeconomic shocks?; (ii) To what extent has real exchange rate misalignment in individual member states differed over 1960-99? There is a school of thought that the only devaluation in the history of the Franc zone, in January 1994, was implemented for the sake of the larger economies. This part of the thesis determines whether there is an empirical basis for this claim; (iii) Following a shock to inflation, how do member states of the Franc zone differ in terms of persistence in food and non-food price inflation?;Chapters 1-3 review the background of the Franc zone. Chapters 4-6 are empirical studies, each addressing a separate perspective, as listed above. To address the first issue, we apply the method of Blanchard and Quah (1989) in order to identify and estimate a structural VAR model appropriate for a small open economy. By decomposing the variance of the macroeconomic shocks in this way, the method extends the atheoretic VAR analysis and uses economic theory and time-series analysis to determine the sources of disturbances to economic variables in Chapter 4. Next, defining real exchange rate misalignment as the percentage deviation of the actual from the estimated equilibrium value, Chapter 5 estimates the degree of misalignment in the real exchange rate for twelve individual member states of the Franc zone. Chapter 6 investigates the degree of inflation persistence in the food and non-food sectors of thirteen individual Franc zone countries; for robustness of our estimates, we avoid the knife edge I(0) / I(1) classification and make use of three semi-parametric methods [Geweke and Porter-Hudak (1983), Phillips (1999a,b) and Robinson (1995a)] of estimating the fractional integration parameter in an ARFIMA (p.d.q) model.;Findings from all three perspectives provide substantial evidence of some heterogeneity among the macroeconomies of the Franc zone countries. The research findings suggest that the conduct of uniform policy, such as monetary policy, within the monetary union by the central bank is likely to result in some net losers and net beneficiaries.