Real Effective Exchange Rate Imbalances and Macroeconomic Adjustments: Evidence from the CEMAC Zone

African Governance and Development Institute Working Paper No. 19/14

15 Pages Posted: 23 Nov 2014

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Date Written: January 22, 2014

Abstract

We assess the behavior of real effective exchange rates (REERs) of members of the 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 are derived for the period 1980 to 2009. 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. Ultimately, there is no need for an adjustment in the level of the peg based on the present quantitative analysis of REER paths.

Keywords: Exchange rate; Macroeconomic impact; CEMAC zone

JEL Classification: F31; F33; F42; F61; O55

Suggested Citation

Asongu, Simplice, Real Effective Exchange Rate Imbalances and Macroeconomic Adjustments: Evidence from the CEMAC Zone (January 22, 2014). African Governance and Development Institute Working Paper No. 19/14. Available at SSRN: https://ssrn.com/abstract=2529450 or http://dx.doi.org/10.2139/ssrn.2529450

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

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