''P. and S. Guillaumont Zone Franc et Developpement Africain''
Journal of Development Economics
Two major issues in the assessment of monetary unions relate to the role of domestic policies in promoting adjustment to permanent external shocks and to the existence of adequate institutional arrangements that promote such adjustment. Under either a fixed or a floating exchange rate system, adjustment to an external shock, such as a terms of trade loss, would entail an eventual decline in real absorption to reflect the decline in the price of the country's production basket relative to its consumption basket.