Optimal Reserves in the Franc Zone: An Empirical Analysis

This paper aims at assessing the optimal reserves in franc zone countries (FZC). First, an EMP crisis index of the cross exchange rate between the CFAF and the USD is constructed and its frequency is computed in a sample of eleven countries over the period 1980–2003. Subsequently, the estimated crisis probability is fed into a calibrated model economy of FZC to compute the optimal reserves to output ratio. We find that actual reserves are mostly lower than the implied optimal reserves.