International risk-sharing and currency unions: The CFA zones

Abstract

This paper explores income and consumption smoothing patterns among the member countries of each of the CFA zones—the CEMAC1 and the WAEMU2—during the period 1980–2005. I find that for the CEMAC, about 24 per cent of shocks to GDP are smoothed through the standard channels (i.e. capital market, credit market and remittances). On the other hand, I find that 66 per cent of shocks are smoothed via foreign aid from France, and 6 per cent via central bank contributions, while reserves pooling provides no shock smoothing. For the WAEMU, I find that only 22 per cent of shocks are smoothed through the standard channels, while about 50 per cent are smoothed via foreign aid from France, 5 per cent via central bank contributions, and no smoothing via reserves pooling. Copyright © 2010 John Wiley & Sons, Ltd.