Abstract
This paper examines the consequences of CFA franc devaluation in an dynamic monetary CGE framework. The model incorporates intertemporal substitution on the part of consumers and firms. Unlike most of studies, special attention is given to the investment response to a devaluation. In our model, what makes a devaluation have real effects is the nominal wage inertia. The simulation results show that the CFA devaluation generates expansionary effects through investment, with a negligible impact on the trade balance and the government deficit. We also find that a reduction in the public service wage which often accompanies a devaluation has important contractionary effects, though it improves trade balance and government deficit.
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