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CBN Journal of Applied Statistics (JAS)

Keywords

Contagion Effect, Exchange Rate, Overvaluation, Undervaluation, Speculative Attacks, Stochastic-Markov Process

Abstract

The study employs the Markovian processs on annual nominal effective exchange rate of CFA Franc spanning 1975 to 2017 to examine whether the CFA franc is prone to speculative attacks or a contagion effect. The findings reveal that the expected duration for the CFA Franc to be undervalued is twice higher than for it to be overvalued. This validates the contagion effect of a Euro crisis on the CFA Franc. Though the level of growth increased significantly during the undervaluation era, the level of uncertainty remains equally high. The findings confirm that exchange rate devaluation influences the expectations of private agents, which in turn triggers an attack on the domestic currency.

Publication Title

CBN Journal of Applied Statistics

Issue

1

Volume

10

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