6 not differ very much, though some of the differences are significant, with the outliers being Burkina Faso (16% lower), Cote d'Ivoire (11% higher) and G&bon (12% higher), implying that these countries may respond systematically to rising zone-wide price level with a lower (Burkina Faso) or higher (Cote d'Ivoire, Gabon) amplitude. These differences can also be detecte. visually in the figure: note, for example, that the increase in Burk.-.a Faso's CPI is smaller than that in the first component. It is also evident from viaual inspection that this first principal component tracks the French inflation closer than that of the other countries (except Gabon). This is confirmed statistically (the correlation for France is bettet than 0.998). Therefore it is safe to assert that the first principal component reflects French inflation and that this is the determining factor for the great bulk of inflation in the CFA zone<sup>16</sup> .

16 With nominal exchange rate stability vis-a-vis the French franc, and a common trend in domestic inflation it is natural to assume that the CFA countries should have achieved stability of the real exchange rate, at least in terms of relative consumer prices at home and abroad. Despite much discussion of this issue, it appears to be unresolved in the literature. In a recent paper, de Macedo (1984) asserted that the franc zone countries had "achieved nominal stability at the expense of real stability", an assertion that was echoed by Devarajan and de Melo (1987a), but contradicted by Guillaumont, Guillaumont and Plans (1988) quotin.g Paraire (1988). It is certainly true, and was shown by de Macedo, that nominal exchange rate stability has not entailed real stability, but that does not imply th. t alternative regimes have provided stability. Paraire used a sampLe of annual exchange rate and CPI data for 76 developing countries to show that CFA countries had, on average, lower variances of their nominal and real effective exchange rate indices than other developing countries in the period 1970-83. His methodology was, however, marred by his neglect of the distortions created by the enormous variances generated in high inflation countries.

A more robust approach is to look at country rankings. Furthermore, in order to take account of equilibrium trends in the real exchange rate it is worth examining variances about a trend line or autoregression. My 1982 study of a 105 country sample provides the necessary data are provided in Honohan (1983). It strongly suggests that, on these measures, the CFA countries have had real exchange rates neither more nor less variable than the average. The mean rank of the CFA countries in the sample varied between 42 and 67 (out of 105) depending on the measure used. The hypothesis that the individua'. rankings of CFA countries were randomly distributed among the 105 countries in the sample cannot be rejected (chi-squared test) even at the 10 per cent level.

The implication is that adherence to the French franc has not given the members any greater variability of the real exchange rate than has been experienced by other countries. All of this, however, relates to consumer prices; comparable data on relative factor costs might tell a very different story, but they are not readily available.