REAL EXCHANGE-RATE MISALIGNMENT IN THE CFA ZONE

Using a method of calculating real exchange rate (RER) misalignment wh ich explicitly incorporates terms of trade shocks and the distinction between tradable and nontradable goods, this paper estimates RER overv aluation in 12 countries of the CFA franc zone before and after the 19 94 devaluation of the CFA franc. The results show that prior to the de valuation, the RER was about 30% overvalued on average with sharp diff erences across the 12 countries. The larger oil producers (Cameroon an d Gabon) were the most overvalued, while some of the smaller, landlock ed countries (Chad and Burkina Faso) were much less so. The estimates appear to be robust to the choice of base year and the two elasticitie s of the model. One year after the devaluation, the REX was undervalue d in a majority of countries, although the variation across countries remains, with Cameroon and Gabon still substantially overvalued.