Convergence in a monetary union: approaches using price dynamics and the equilibrium exchange rate.

Summary This thesis analyzes convergence within a monetary union through the dynamics of prices and equilibrium exchange rates. In the first chapter we present the general characteristics of currency areas, as well as the history of the ones we study: the EMU and the CFA zone. The second chapter deals with price convergence in the euro area using smooth transition models. Convergence is non-linear, and the speed of adjustment is different across countries. This is explained by differences in the evolution of price competitiveness, labor market rigidities, but also specialization patterns. The third chapter assesses the validity of absolute Purchasing Power Parity in EMU through unit root and cointegration tests in second and third generation panels. Overall, the price dynamics appear heterogeneous and dependent on the periods of evolution of the EMU as well as on the groups of countries considered. The fourth chapter links external imbalances to the sovereign debt crisis that EMU has been experiencing since 2009. We show that when a country belonging to a monetary union faces an external imbalance vis-à-vis another member country, the corresponding interest rate differential tends to increase. Moreover, when these imbalances persist, they can trigger a balance of payments crisis. Finally, the last chapter looks at the sustainability of the CFA zone. By comparing the CFA zone to a sample of other Sub-Saharan African countries, we show that despite its failure to meet the optimality criteria, the CFA zone has favored internal and external balances and facilitated adjustments at both the aggregate and individual levels. This suggests that this union is sustainable.