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Exchange Rate Volatility Under Peg :, Do Trade Patterns Matter?, Constant Lonkeng Ngouana

Abstract
This paper assesses the role of trade patterns in shaping the volatility of the effective exchange rate under two alternative peg regimes: a hard peg to a single currency and a peg to a basket of currencies. I link the changes in the nominal effective exchange rate of a pegged currency to the fluctuations of its anchor vis-a-vis other major currencies, with an emphasis on the dynamics of trade patterns. In an application to the WAEMU (West African Economic and Monetary Union), I find that the nominal effective exchange rate of the union was twice as volatile under the hard peg to the euro as it would have been under a hypothetical basket peg over the past decade. This result was driven by the substantial shifts that occurred in WAEMU trade patterns, away from euro area countries and toward the ?"BICs" (Brazil, India, and China). These findings suggest that policymakers should pay as much attention to the type of peg as to pegging in itself, with a particular focus on the dynamics of trade patterns
Table Of Contents
Cover; Abstract; Contents; I. Introduction; A. Related Literature; II. Background; A. Institutional Arrangement of the CFA Franc's Peg; B. Exchange Rate Developments in the WAEMU; C. The Dynamics of the WAEMU's Trade Patterns (1980-2010); III. Analytics; IV. Application: The WAEMU's Nominal Effective Exchange Rate; A. Data Sources and Computations; B. Quantitative Analysis; C. Sensitivity Analysis; V. Conclusion; Selected References
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (23 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781475569346

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