Competitiveness and the real exchange rate: the standpoint of countries in the CEMAC zone

Lendjoungou, Francis (2009): Competitiveness and the real exchange rate: the standpoint of countries in the CEMAC zone.

Abstract

This paper focuses on real exchange rate in the case of CEMAC countries. To analyze the situation in Cameroon, Central African Republic, Congo, Gabon and Chad we used annual data from 1979 to 2008. Two approaches were used related to equilibrium real exchange rate model based on fundamentals and calculations show that terms of trade, public expenditure, the degree of openness of the economy and productivity are the most important variables which influence the equilibrium of real exchange rate. Based on the estimated paths, there was a clear pattern of overvaluation before 1994, suggesting that the exchange rate adjustment was needed. Despite a relative appreciation trend during last years, the real exchange rate of CEMAC countries has not experienced an important overvaluation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Equilibrium real exchange rate; CEMAC; FEER
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

References

[1]- Abdih Y. and C. Tsangarides. 2006, « FEER for the CFA Franc ». IMF Working Paper No.06/236. (Washington: International Monetary Fund).

[2]- Baffes J., Elbadawi I. and O’Connell S.(1997) : « Single-equation estimation of the equilibrium real exchange rate ». Working paper. 08/20/97. World Bank.

[3]- Bakhache S., Kalonji K., Lewis M. and Nachega J.C. (2006), « Assessing competitiveness after conflict: The case of the Central African Republic », IMF Working paper WP/06/303. December, International Monetary Fund.

[4]- Baghli M., Bouthevillain C., De Brandt O., H. Fraisse and Le Bihan H. (2002) : « PIB potentiel et écart de PIB : Quelques évaluations pour la France », NER Banque de France N° 89.

[5]- Banque Mondiale (1984): Programme d’action concertée pour un développement stable de l’Afrique au sud du Sahara , Washington D.C.

[6]- Bouthevillain C. (1995) : « Une datation des cycles de croissance des grands pays industrialisés ». Document de travail N° 95-2. Direction de la Prévision, Ministère de l’Economie, France.

[7]- Blanchard O. and D. Quah (1989) : « The dynamic effects of aggregate demand and supply disturbances », American Economic Review, vol. 79. 655-673.

[8]- Borowski D., C. Couharde and F. Thibault (1997) : « Sensibilités des taux de change d’équilibre aux outputs gaps et aux cibles de balance courante : Méthodologie et estimation pour les grands pays industrialisés », Document de travail, N° 97-3, Décembre 1997, Direction de la Prévision, France.

[9]- Cartapanis A., Dropsy V. and Mametz S.(1999) : « Indicateurs d’alerte et crises de change : Analyse comparée des économies d’Europe Centrale et Orientale (1990-1997) et d’Amérique latine et d’Asie de l’Est (1971-1997) », Revue économique, vol. 50. Novembre 1999, p.1237-1254.

[10]- Clark P. and Mac Donald R. (1998): « Exchange rates and economic fundamentals : A methodological comparaison of BEERs and FEERs », IMF Working Paper n°98/67, May, International Monetary Fund.

[11]- Devarajan Shantayanan, Geoffery D. Lewis and Sherman Robinson (1993): « External shocks, purchasing power parity and the equilibrium real exchange rate », The World Bank Economic Review, Vol. 7. No. 1. 45-63, World Bank, Washington. DC.

[12]- Devarajan. S. and L. Hinkle (1994): « The CFA Franc Parity Change: An Opportunity to Restore Growth and Reduce Poverty », Afrika Spectrum 29 (2): 131-51.

[13]- Edwards Sebastian and Savastano Miguel (1999): « Exchange rates in Emerging economies : what do we know ? what do we need to know? », NBER Working paper 7228, Princeton University Press.

[14]- Edwards S. (1989) : Real exchange rates. devaluation and adjustment : exchange rate policy in developing countries , Cambridge, Mass. MIT PRESS.

[15]- Edwards S. (1994) : « Real and monetary determinants of real exchange rate behavior : Theory and evidence from developing countries », in Estimating equilibrium exchange rate, ed. By John Williamson.

[16]- Feyzioglu T. (1997): « Estimating the equilibrium real exchange rate: an application to Finland », IMF Working paper WP/97/09, (Washington: International Monetary Fund).

[17]- Froot K. and Roggoff K. (1995), « Perspectives on PPP and the long run real exchange rate ». in Grossman G. and Rogoff K. (eds), The Handbook of International Economics, vol. N°3, Amsterdam, North Holland Press.

[18]- Gelbard E. and Nagayasu J. (2004): « Determinants of Angola’s real exchange rate 1992-2002 », The Developing Economies, XLII-3 (September 2004) 392-404.

[19]- Johansen S. (1988): « Statistical analysis of cointegration vectors », Journal of Economic Dynamics and Control, vol.12. pp.231-254.

[20]- Johansen S. (1991): « Estimation and hypothesis testing of cointegration vectors in gaussian vector autoregressive models », Econometrica, vol.59. N°6. pp.1551-1580.

[21]- Johansen S. (1995): Likelihood based inference on cointegration in the vector autoregressive model, Oxford University Press.

[22]- Johansen S. (1988): « Statistical analysis of cointegration vectors », Journal of Economic Dynamics and Control, vol.12, pp.231-254.

[23]- Johansen and Juselius (1990): « Maximum likelihood estimation and inference on cointegration with applications to the demand for money », Oxford Bulletin of Economics and Statistics, vol.52. pp. 169-210.

[24]- Kiguel. Miguel and Nita Ghei (1993) : « Devaluations in Low-Income Countries » World Bank Policy Research Working Paper 1224, World Bank, Washington. DC.

[25]- Linjouom M. (2004) : « Estimation du taux de change réel d’équilibre et choix d’un régime de change pour le Cameroun », Cahiers de recherche N° 2004-03, Eurisco, Université Paris Dauphine. France.

[26]- Lothian J. and Taylor M. (1996): « Real Exchange rate behavior: The recent float from perspective of the past two centuries », Journal of Political Economy 104(3), p.488-509.

[27]- Meese R. et Rogoff K. (1983) : « Empirical exchange rate models in the seventies : Do they fit out of sample? », Journal of International Economics, 14 (1-2), p.3-23.

[28]- Milesi-Ferreti G.M. et Razin A. (1996) : « Current account sustainability : Selected East Asian and Latin American experiences », IMF Working paper, WP/96/110.

[29]- Mongardini J.(1998) : « Estimating Egypt’s equilibrium real exchange rate », IMF Working paper. WP/98/5, (Washington: International Monetary Fund).

[30]- Paiva C. (2001): « Competitiveness and the equilibrium exchange rate in Costa Rica », IMF Working paper, WP/01/23, (Washington: International Monetary Fund).

[31]- Stein J. (1994): « The natural real exchange rate of the dollar and determinants of capital flows », in Williamson J. (1994. op. Cit).

[32]- Stein J. and Allen P. (1995), Fundamental determinants of exchange rates, Oxford University Press.

[33]- Traoré Antoine (2004) : « Calcul du taux de change effectif réel et estimation de son niveau d’équilibre : une application au cas du Burkina », Document de Travail, Banque des Etats de l’Afrique de l’Ouest (BCEAO).

[34]- Tsassa C., Yamb B. and Kouezo B. (2002): « The misalignments of real exchange rates in the franc zone countries : An empirical analysis », African Economic Consortium AERC/CREA. Biannual Research Workshop, Nairobi, Kenya.

[35]- Williamson J. (1985): «The exchange rate system », Policy analysis in international economics N°5, June, Institute for International Economics, Washington.

[36]- Williamson J. (1994): Estimating equilibrium exchange rates. Institute for International Economics. Washington.

[37]- Willet T. (1986): « Exchange rate volatility. international trade and resource allocation », Journal of International Money and Finance, (supplement). 5 (mars).

[38]- Zafar A. (2005) « The impact of the strong euro on the real effective exchange rates of the two francophone african CFA zones », World Bank Policy Research Working paper N°3751. October 2005.