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Sources of Macroeconomic Fluctuations in a Franc Zone Country: A Bayesian estimation

NANA DAVIES, Charles (2018): Sources of Macroeconomic Fluctuations in a Franc Zone Country: A Bayesian estimation.

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Abstract

The Central African Economic and Monetary Community (CEMAC) is a constituent of the Franc Zone (FZ), whose roots may be traced back to 1901 when France created the West African Bank. Since its inception, FZ's monetary authorities' objective and monetary policy instruments have been evolving. Nevertheless, some FZ's features have endured, namely the fixed exchange rate between that monetary union's common currency (CFAF) and France's currency, the free capital mobility between Franc Zone countries (FZC) and France, the ceiling on the monetary budget financing and the obligation of FZC to entrust a share of their foreign exchange reserves to the French Treasury in exchange for the convertibility of CFAF into France's currency. Using Cameroon's data over 1979 and 2014, we estimate a DSGE model of a small open economy model that takes into account some of those features. We find that technology and fiscal shocks drive the bulk of economic fluctuations.

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