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REER Imbalances and Macroeconomic Adjustments: evidence from the CEMAC zone

Author

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  • Simplice A. Asongu

    (Yaoundé/Cameroon)

  • Joseph Nnanna

    (The Development Bank of Nigeria, Abuja, Nigeria)

Abstract

The EMU crisis holds special lessons for existing monetary unions. We assess the behavior of real effective exchange rates (REERs) of members of the Central African Economic and Monetary Community (CEMAC) zone with respect to their long-term equilibrium paths. A reduced form of the fundamental equilibrium exchange rate (FEER) model is estimated and associated misalignments. Our findings suggest that for majority of countries, macroeconomic fundamentals have the expected associations with the exchange rate fluctuations. The analysis also reveals that only the REER adjustments of Cameroon and Gabon are significant in restoring the long-term equilibrium in event of a shock. The Cameroonian economic fundamentals of terms of trade, government expenditure and openness have different long-term relations with the REER in comparison to those of other member states. There is no need for an adjustment in the level of the peg based on the present quantitative analysis of REER paths.

Suggested Citation

  • Simplice A. Asongu & Joseph Nnanna, 2019. "REER Imbalances and Macroeconomic Adjustments: evidence from the CEMAC zone," Working Papers of the African Governance and Development Institute. 19/071, African Governance and Development Institute..
    • Handle: RePEc:agd:wpaper:19/071
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    References listed on IDEAS

    as
    1. Yasser Abdih & Charalambos Tsangarides, 2010. "FEER for the CFA franc," Applied Economics, Taylor & Francis Journals, vol. 42(16), pages 2009-2029.
    2. Gan-Ochir Doojav, 2018. "The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia," Foreign Trade Review, , vol. 53(4), pages 211-224, November.
    3. Simplice A. Asongu, 2013. "Real and monetary policy convergence: EMU crisis to the CFA zone," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 5(1), pages 20-38, April.
    4. Ms. Ruo Chen & Mr. Gian M Milesi-Ferretti & Mr. Thierry Tressel, 2012. "External Imbalances in the Euro Area," IMF Working Papers 2012/236, International Monetary Fund.
    5. Simplice Asongu, 2014. "REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 82(2), pages 276-289, June.
    6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
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    Cited by:

    1. Prabheesh, K.P. & Prakash, Branesh & Vuniivi, Viliame, 2023. "Assessment of Fiji’s exchange rate," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1282-1305.
    2. Simplice A. Asongu & Joseph Nnanna, 2021. "Financial Crisis, Globalisation and Development in Africa," Foreign Trade Review, , vol. 56(1), pages 89-104, February.

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    More about this item

    Keywords

    Exchange rate; Macroeconomic impact; CEMAC zone;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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