Monetary Credibility and Asymmetries : Small African Countries and the EMU Advent
(2003)
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- Abstract
- As a country sets a peg of its currency the monetary policy credibility it expects to gain implies that the anti-inflationary performance has to be as similar as possible to the anchor country one. Failing to meet this requirement can lead to speculative attacks against the currency parity. This is an insight drawn from monetary policy credibility models dealing with fixed exchange rates regimes. In addition, multiple equilibria embedded in these models may cause speculative attacks that make the efficiency of exchange rate regimes questionable. Contrary to this theoretical insight, the Franc zone continues to work despite the disinflation process in the European Union which is likely to increase the level of constraint related the use of the euro as an anchor. This paper shows how the existence of particular arrangements in the Franc zone allows for getting a framework without multiple equilibria and insures the stability of the system. Moreover, two kinds of structural asymmetries relative to African economies are introduced to show that, without the "operations account" mechanism, the EMU advent and the unfavorable economic and political environment which prevails in Africa are likely to have increased the constraint of pegging to the euro.
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Citations
Nyembwe, A. (2003). Monetary Credibility and Asymmetries : Small African Countries and the EMU Advent (ECON Working Papers 2003/55). https://hdl.handle.net/2078.5/33574