This thesis focuses on one of the most important currency unions in the world known as the CFA zone. The goal of this thesis is to draw a comparison of African countries with their own national currencies to African countries that are part of the CFA zone and examine how this affects their macroeconomic performance in terms of GDP growth, inflation or trade. The thesis has 3 chapters. Each chapter should be viewed by the reader as stand-alone papers. Chapter 1 develops a new de facto measure of central bank independence (CBI) based on two recent measures of the turnover rates of central bank governors introduced by Vuletin and Zhu (2011), complemented with measures of alliance with the government in power, captured by prior executive appointment, tribe proximity, and political party affiliation. Using 1980-2009 data from 12 countries from the CFA zone (a currency union) and 18 non-CFA countries, the new index is used to 1) show how CBI affects countries that are part of a monetary union and 2) examine whether CBI can help achieve price stability in Africa.
The results suggest that CBI works differently for countries that are currency union members. Unlike countries with monetary independence, where premature removals of central bank governors lead to higher inflation rates. We see the opposite trend for countries that are part of a currency union, this study suggests that premature removals of central bank governors instead lead to lower rates of inflation. This is due to the fact that one of the gains of currency union memberships is discipline in monetary policy where the central banker’s role is to implement monetary policy that ensures the stability of the zone rather than one’s country. So, in cases where the central banker attempts to privilege one country, other member countries can force him out to protect the economic integrity of the union.

Chapter 2 examines the benefits of CFA zone membership by estimating the effects of joining the CFA zone on short run business cycles indicators such as income per capita and inflation as well as long-term economic indicators such as trade relations with France and foreign direct investment (FDI) in Mali. Using the synthetic control method (SCM), we show that Mali’s CFA membership has a positive effect on its income, inflation, and foreign direct investment (FDI) but no discernible effect on trade relations with France. We conclude that joining the CFA zone can generate potential economic gains for countries seeking membership by fostering growth and providing price stability but does not necessarily increase trade relations with France even though the CFA is a former French colonial currency. Using data from 1980 to 2009 for 23 African countries (9 CFA countries and 14 non-CFA countries), Chapter 3 examines the effect of commodity price shocks on the likelihood of a central bank governor removal. Governor removals are decomposed into premature removals and ally replacements. Our conditional fixed effects logit models show that commodity price shocks have no effect on the probability of a central bank governor’s premature removal but lead to a statistically significant increase in the likelihood of an ally replacement and this is true for both non-CFA and CFA countries. This trend holds when commodities price shocks are separated into oil/mineral shocks but not for agricultural commodities shocks.