REER Imbalances and Macroeconomic Adjustments: Evidence from the CEMAC Zone

Published date01 August 2020
Date01 August 2020
Subject MatterArticles
REER Imbalances
and Macroeconomic
Adjustments: Evidence
from the CEMAC Zone
Simplice A. Asongu1 and
Joseph Nnanna2
The European Monetary Union (EMU) crisis holds special lessons for existing mon-
etary unions. We assess the behaviour of real effective exchange rates (REERs) of
members of the Central African Economic and Monetary Community zone with
respect to their long-term equilibrium paths. A reduced form of the fundamental
equilibrium exchange rate model is estimated for 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 the 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.
JEL: F31, F33, F42, F61, O55
Exchange rate, macroeconomic fundamentals, CEMAC zone
1 African Governance and Development Institute, Yaoundé, Cameroon.
2 The Development Bank of Nigeria, The Clan Place, Maitama, Abuja, Nigeria.
Corresponding author:
Simplice A. Asongu, African Governance and Development Institute, P.O. Box 8413, Yaoundé, Cameroon.
Foreign Trade Review
55(3) 372–381, 2020
© 2020 Indian Institute of
Foreign Trade
Reprints and permissions:
DOI: 10.1177/0015732520919838

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