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Exchange rate misalignments and the external balance under a pegged currency system

Author

Listed:
  • Blaise Gnimassoun

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract
This paper analyzes the link between the exchange rate misalignments and the external balance under a pegged currency system focusing on the former French colonies of Africa (the CFA zone). Having discussed and chosen an appropriate analytical framework, it addresses the issue of model uncertainty regarding the equilibrium exchange rate model before estimating currency misalignments. The results show that misalignments have a negative and asymmetric impact on the current account. While overvaluation of the CFA franc deteriorates the current account, undervaluation does not improve it. Finally, our results highlight that the export concentration tends to exacerbate the overall negative impact of currency misalignments.

Suggested Citation

  • Blaise Gnimassoun, 2017. "Exchange rate misalignments and the external balance under a pegged currency system," Post-Print hal-01665005, HAL.
    • Handle: RePEc:hal:journl:hal-01665005
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    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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