2005年-世界发展银行全球_The_Impact_of_the_Strong_Euro_on_the_Real_Effective_Exchange_Rates_of_the_Two_Francophone_African_CFA_Zones_33页_474kb

Summary of WPS3751: The Impact of the Strong Euro on the Real Effective Exchange Rates of the Two Francophone African CFA Zones

Core Content

This working paper analyzes the impact of the introduction of the euro in 1999 on the real effective exchange rates (REER) of the two CFA franc zones: the West African UEMOA (Union Economique et Monétaire Ouest-Africaine) and the Central African CEMAC (Communauté Économique et Monétaire de l'Afrique Centrale). The study employs a relative purchasing power parity (PPP) approach to estimate the degree of misalignment in the REER of these zones from 1999 to 2004.

Main Findings

• Appreciation of REER:

  • The REER in the UEMOA zone appreciated by approximately 8% from 1999 to 2004.
  • The REER in the CEMAC zone appreciated by about 7% over the same period.
  • The inclusion of "unrecorded trade" (informal trade) reduced the appreciation to 6% in both zones due to higher inflation in Nigeria and Ghana.

• Factors Influencing Appreciation:

  • Euro-dollar exchange rate volatility: The appreciation was heavily influenced by the euro's appreciation against the dollar and other currencies, particularly in the UEMOA zone.
  • Monetary policy: Conservative monetary policies in both zones contributed to the appreciation of the REER.
  • Inflation differentials: Lower inflation in CEMAC compared to UEMOA reduced the extent of appreciation in the Central African zone.
  • Trade composition: CEMAC's trade with high-inflation East Asian countries like China and Korea offset some of the appreciation effects.
  • Fiscal and current account deficits: The U.S. twin deficits (fiscal and current account) prompted a sustained dollar depreciation, increasing market confidence in the euro and contributing to REER appreciation.

• Long-run equilibrium analysis:

  • Using time series econometrics and the Engle-Granger two-stage cointegration procedure, the study finds little statistical evidence of a long-run equilibrium exchange rate that is a vector of economic fundamentals.
  • The dummy variable representing the 1994 devaluation explains most of the real exchange rate behavior in both zones.
  • Economic openness in UEMOA contributed to the appreciation of the REER.

Key Methodologies and Data

• Methodology:

  • The study uses a relative PPP approach to estimate misalignment.
  • A panel dataset of monthly REER for both CFA zones is constructed using trade-weighted nominal exchange rates adjusted for inflation differentials.
  • The geometric weighted average of bilateral real exchange rates is used to compute the multilateral REER.

• Data Sources:

  • Inflation data (CPI): From the IMF’s International Financial Statistics.
  • Exchange rates: From FX history, an online foreign exchange database.
  • Trade data: From the IMF’s Direction of Trade Statistics.
  • Terms of trade: From the World Bank’s World Development Indicators.
  • Aid and capital flows: From the World Bank’s Global Development Finance database.

• Trade Weights:

  • Trade weights are based on the share of total trade (imports and exports) for each region over a two-year period (2000-2001).
  • Simulations were conducted using unrecorded trade data from Nigeria and Ghana, which showed that informal trade did not significantly alter the REER trends due to minimal parallel market differentials.

• Currency Selection:

  • Currencies included in the analysis are those with a trade share of at least 0.5% of UEMOA or CEMAC exports and imports.
  • The selected currencies include the euro, U.S. dollar, British pound, Chinese yuan, Korean won, and others.

Implications and Future Outlook

• The strong euro has led to a partial loss of competitiveness in the export markets of both CFA zones.
• The fixed exchange rate regime of the CFA franc has shown resilience despite the post-Bretton Woods shift to flexible exchange rates.
• The French Treasury's guarantee of the CFA franc's convertibility to the euro has created a contingent liability, which could be a concern in the event of significant balance of payments imbalances.
• The lack of long-run equilibrium in the REER suggests that exchange rate misalignment remains a challenge, especially in the context of volatile capital and aid flows.
• The 1994 devaluation continues to have a significant impact on the real exchange rate dynamics in both zones.
• Economic openness in UEMOA has played a role in REER appreciation, indicating the need for careful monitoring of trade and financial linkages.

Conclusion

The paper highlights the impact of the euro's strength on the real effective exchange rates of the two CFA franc zones. While the appreciation of the REER has been influenced by global factors such as the euro-dollar exchange rate and inflation differentials, the CFA system's fixed parity and monetary policy constraints have mitigated some of the potential negative impacts. The study underscores the importance of measuring and monitoring exchange rate misalignment in developing economies and the need for more comprehensive data to better understand the long-run behavior of the real exchange rate.