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The Economics and Finance Letters

June 2020, Volume 7, 1, pp 57-75

Management of The CFA Franc: What are the Fundamentals of the Real Exchange Rate in West African Economic and Monetary Union (WAEMU)?

Kwami Ossadzifo Wonyra

,

Honore Tenakoua

Kwami Ossadzifo Wonyra 1

Honore Tenakoua 2

  1. FaSEG-Universite de Kara, Togo. 1

  2. Chef du Service de la Brigade de Verification N°2 de la Direction des Moyennes Entreprises du Centre lll/ Ouagadougou, Burkina Faso. 2

Pages: 57-75

DOI: 10.18488/journal.29.2020.71.57.75

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Article History:

Received: 06 December, 2019
Revised: 13 January, 2020
Accepted: 14 February, 2020
Published: 16 March, 2020


Abstract:

Identifying the fundamentals of the real exchange rate of the CFA franc in West African Economic and Monetary Union (WAEMU) is the main objective of this paper. To achieve this, we used panel data over a period from 1984 to 2014. To achieve this objective, we use the Pooled Mean Group, inspired by the work of Pesaran, Shin, and Smith (1999) with data from secondary sources from the World Bank and the International Monetary Fund. The results obtained show that investment, government spending, trade openness and balance significantly influence the real exchange rate of the long-term CFA franc in WAEMU. With regard to the short-term relationship, the results show that only productivity and the trade balance are the fundamentals that significantly influence the real exchange rate of the CFA franc. It is then necessary to find a solution to this extroversion of WAEMU economies, which solution would be the promotion of the import substitution policy. A policy should be put in place to enable our economies to benefit from trade liberalization. This involves promoting exports of high value-added products in order to improve the external position of economies and to address the instability of commodity prices on which developing country exporters of primary goods depend.
Contribution/ Originality
This study contributes to the existing literature by Identifying the fundamentals of the real exchange rate of the CFA franc in West African Economic and Monetary Union (WAEMU).

Keywords:

Fundamentals, Real exchange rate, CFA, PMG, WAEMU.

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Reference:

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Statistics:

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Funding:

This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

Both authors contributed equally to the conception and design of the study.

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