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Is The Announced Monetary Union In Gcc Countries Feasible? A Multivariate Structural Var Approach

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Author Info

  • MAGDA KANDIL

    ()
    (Egyptian Center for Economic Studies, Egypt)

  • MOHAMED TRABELSI

    ()
    (Dubai Economic Policy and Research Center, U.A.E.)

Abstract

This paper tests the desirability and feasibility of the establishment of a monetary union in GCC countries using a multivariate structural VAR during the period 1980–2006. The paper builds on the earlier work, capitalizing on a methodology that captures supply and demand disturbances impinging on individual economies. Co-movements of shocks across countries are considered a crucial condition towards integration in a common currency area. Shocks are based on the estimation of a structural VAR model that comprises world real output, domestic output, real exchange rates, and the price level. Based on correlations using supply, demand, and nominal shocks, the paper establishes the following results: (i) countries of the region are still far from the necessary conditions to ensure the success of joining a currency union. Nevertheless, for a subset of countries (Saudi Arabia, the United Arab Emirates, and Qatar), conditions suggest higher potential to take the lead in endorsing and fostering a common currency zone, (ii) a higher degree of labor mobility, openness, and intra-regional mobility are still desired to accelerate regional integration and ensure a steady path towards the establishment of a currency union.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Middle East Development Journal.

Volume (Year): 04 (2012)
Issue (Month): 01 ()
Pages: 1250001-1-1250001-18

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Handle: RePEc:wsi:medjxx:v:04:y:2012:i:01:p:1250001-1-1250001-18

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Related research

Keywords: Gulf cooperation council; optimal currency area; multivariate SVAR;

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Cited by:
  1. Abdulghaffar, Mahmood & Al-Ubaydli, Omar & Mahmood, Omar, 2014. "The Malfunctioning of the Gulf Cooperation Council Single Market: Features, Causes and Remedies," MPRA Paper 55413, University Library of Munich, Germany.

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