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On the Optimality of a GCC Monetary Union: Structural VAR, Common Trends, and Common Cycles Evidence

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  • Aamer S. Abu-Qarn
  • Suleiman Abu-Bader

Abstract

The suitability of the proposed monetary union among the members of the Gulf Cooperation Council (GCC) is examined. The authors identify the underlying structural shocks that these economies are subject to and assess the extent to which the shocks are symmetric. Alternatively, the authors test for common trends and common business cycles among the GCC economies. They find that while the transitory demand shocks are typically symmetric, the permanent supply shocks are asymmetric. Furthermore, they do not find synchronous long-run and short-run movements in output. Despite the progress that has been made in terms of integration, the findings indicate that the conditions for forming a GCC monetary union have not as yet been met. Copyright 2008 The Authors.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 31 (2008)
Issue (Month): 5 (05)
Pages: 612-630

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Handle: RePEc:bla:worlde:v:31:y:2008:i:5:p:612-630

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  1. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
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  4. Steven K. Buigut & Neven Valev, 2004. "Is the Proposed East African Monetary Union an Optimal Currency Area? A Structural Vector Autoregression Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0407, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  5. Ugo Fasano-Filho & Andrea Schaechter, 2003. "Monetary Union Among Member Countries of the Gulf Cooperation Council," IMF Occasional Papers 223, International Monetary Fund.
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  7. Humayon A. Dar & John R. Presley, 2001. "The Gulf Co-operation Council: A Slow Path to Integration?," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 24(9), pages 1161-1178, 09.
  8. Arie Arnon & Avia Spivak, 1996. "Monetary integration between the Israeli, Jordanian and Palestinian economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 132(2), pages 259-277, September.
  9. Behrouz Guerami & S. Nuri Erbas & George T. Abed, 2003. "The GCC Monetary Union," IMF Working Papers 03/66, International Monetary Fund.
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  11. Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 202-211, June.
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Cited by:
  1. Rosmy Jean Louis & Mohamed Osman & Faruk Balli, 2010. "Is the US Dollar a Suitable Anchor for the Newly Proposed GCC Currency?," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 33(12), pages 1898-1922, December.
  2. Willem Buiter, 2008. "Economic, Political, and Institutional Prerequisites for Monetary Union Among the Members of the Gulf Cooperation Council," Open Economies Review, Springer, Springer, vol. 19(5), pages 579-612, November.
  3. Adom, Assandé Désiré & Sharma, Subhash C. & Morshed, A.K.M. Mahbub, 2010. "Economic integration in Africa," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 50(3), pages 245-253, August.
  4. Weshah Razzak, . "On the GCC Currency Union," API-Working Paper Series 0910, Arab Planning Institute - Kuwait, Information Center.
  5. Omotor, Douglason G. & Niringiye, Aggrey, 2011. "Optimum Currency Area and Shock Asymmetry: A Dynamic Analysis of the West African Monetary Zone (WAMZ)," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 71-82, September.
  6. Ahmed AlKholifey & Ali Alreshan, 2010. "GCC monetary union," IFC Bulletins chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Proceedings of the SARB/IFC seminar on "Economic and financial convergence en route to regional economic integration: experience, prospects and statis, volume 32, pages 17-51 Bank for International Settlements.
  7. Louis, Rosmy & Balli, Faruk & Osman, Mohammad, 2008. "Monetary Union Among Arab Gulf Cooperation Council (AGCC) Countries: Does the symmetry of shocks extend to the non-oil sector?," MPRA Paper 11611, University Library of Munich, Germany.
  8. Etienne Farvaque & Norimichi Matsueda, 2010. "On the Sustainability of a Monetary Union under External Shocks: a Theoretical Result and Its Application to the Gulf Countries," Discussion Paper Series, School of Economics, Kwansei Gakuin University 66, School of Economics, Kwansei Gakuin University, revised Dec 2010.
  9. Rosmy Jean Louis & Faruk Balli & Mohamed Osman, 2012. "On the feasibility of monetary union among Gulf Cooperation Council (GCC) countries: does the symmetry of shocks extend to the non-oil sector?," Journal of Economics and Finance, Springer, Springer, vol. 36(2), pages 319-334, April.
  10. Rosmy Jean Louis & Faruk Balli & Mohamed Osman, 2012. "On the choice of an anchor for the GCC currency: does the symmetry of shocks extend to both the oil and the non-oil sectors?," International Economics and Economic Policy, Springer, Springer, vol. 9(1), pages 83-110, March.
  11. Stefan Eichler & Alexander Karmann, 2011. "Optimum Currency Areas in Emerging Market Regions: Evidence Based on the Symmetry of Economic Shocks," Open Economies Review, Springer, Springer, vol. 22(5), pages 935-954, November.

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