Two essays on macroeconomic convergence in the Franc Zone

Scope and Method of Study. The first part of the study tests whether stochastic convergence is occurring in the Franc Zone in terms of per capita real GDP and per capita consumption. Univariate unit root tests, panel unit root tests without and with cross sectional dependence are implemented with annual data for the period 1960-2008. The second part of the study examines the monetary stochastic convergence using the same methodology. Quarterly data from the respective periods 1962:2-2008:2 for the domestic money supply as a policy tool, and 1990:1-2007:4 for the Consumer Price Index (CPI) as the policy outcome are used to evaluate the monetary policy coordination in the Zone. Subgroups of the Zone based on geographical location and main production are analyzed as a way to capture the regional pattern in convergence.;Findings and Conclusions. The test results support stochastic convergence in per capita real consumption. The oil producers located in the East are converging as a group in terms of real consumption. The Zone consists of a mix of convergent and divergent countries in terms of per capita real GDP and per capita consumption. More countries are converging in both real GDP and real consumption once the more powerful tests are considered. However no uniform integration process happened during the period of the study. Policy makers should be aware of some degree of heterogeneity in the Zone; policies based on real output should be implemented by geographic location and convergence criteria for all the countries should include or target the consumption level in the countries. The study also finds that a greater degree of stochastic monetary convergence has occurred in the Zone during the two sub periods, 1962:2-2008:2 and 1990:1-2007:4. The Eastern countries experience uniform convergence in terms of CPI. However no major difference exits between the CPI and the domestic money supply in the case of the univariate tests. The results indicate that the monetary policy of the Zone did matter in the integration process during its decades of existence.