As members of the CFA Franc Zone, Cameroom, Cote d'Ivoire, and Senegal cannot use the nominal exchange rate as a tool of macroeconomic adjustment. This article considers these countries' responses to the commodity and oil price shocks of the 1970s in light of this and other institutional constraints. Using a two sector model, it shows that there exist instruments that, in principle, permit the real exchange rate depreciation necessary for adjusting to macroeconomic imbalances. The authors interpret the very different adjustment experiences of the three countries (despite their common economic structure and institutional setting) in terms of different uses of these instruments. Alternative assumptions about the labour market leave the qualitative nature of the results unaltered. Statistical analysis of data from the three countries confirms the model's linking of the current account and real exchange rate with the instruments of adjustment.
Details
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Author
Devarajan, Shantayanan de Melo, Jaime
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Document Date
1987/05/31
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Document Type
Journal Article
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Report Number
14168
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2010/07/01
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Doc Name
Adjustment with a fixed exchange rate : Cameroon, Cote d'Ivoire and Senegal
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Keywords
current account deficit;real exchange rate;export tax;import tariff;real exchange rate appreciation;terms of trade;elasticity of substitution;Manufacturing;relative price;public expenditure;world price;demand curve;nominal exchange rate;real exchange rate depreciation;net financial asset position;government expenditure;fixed exchange rate;real exchange rate volatility;price elasticity of demand;constant elasticity of substitution;composition of government expenditure;real exchange rate stability;real exchange rate behavior;reduction in government expenditure;net domestic saving;wholesale price index;domestic producer price;loss of competitiveness;current account surplus;public sector deficit;budget line;cash crop;income effect;substitution effect;cash crop sector;price of export;federal government budget;windfall gain;budget deficit;external deficit;Exchange Rates;foreign direct investment;commodity stabilization fund;Foreign Exchange Reserve;effect of taxes;price of imports;private capital inflow;
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Citation
Devarajan, Shantayanan de Melo, Jaime
Adjustment with a fixed exchange rate : Cameroon, Cote d'Ivoire and Senegal (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/601971468770731771/Adjustment-with-a-fixed-exchange-rate-Cameroon-Cote-dIvoire-and-Senegal