Advanced Search
MyIDEAS: Login

Is the Proposed East African Monetary Union an Optimal Currency Area? A Structural Vector Autoregression Analysis

Contents:

Author Info

Abstract

The treaty of 1999 to revive the defunct East African Community (EAC) ratified by Kenya, Uganda, and Tanzania came into force on July 2000 with the objective of fostering a closer co-operation in political, economic, social, and cultural fields. To achieve this, an East Africa Customs Union protocol was signed in March 2004. A Common Market, a Monetary Union, and ultimately a Political Federation of East Africa states is planned. Though the question of a monetary union has been discussed in the political arena there has been no corresponding empirical study on the economic viability of such a union. This article fills the gap and assesses whether the political force driving the EAC towards a monetary union has economic basis. In particular, we focus on the symmetry of the underlying shocks across the East African economies as a precondition for forming an optimum currency area (OCA). As Mundell (1961) and McKinnon (1963) describe, the member countries of a monetary union do not have independent monetary policy, which differs from that of the union as a whole; governments cannot use monetary and exchange rate policies to react to a country-specific shock. How serious this limitation is for the union countries depends on the degree of asymmetry of shocks and the speed with which the economies adjust to these shocks. If disturbances are distributed symmetrically across union countries, a common response will suffice. If, however, the countries face mostly asymmetric shocks, the retention of policy autonomy is beneficial.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://icepp.gsu.edu/sites/default/files/documents/icepp/wp/ispwp0407.pdf
Download Restriction: no

Bibliographic Info

Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper0407.

as in new window
Length: 27 pages
Date of creation: 01 Sep 2004
Date of revision:
Handle: RePEc:ays:ispwps:paper0407

Contact details of provider:
Phone: 404-413-0235
Fax: 404-413-0244
Web page: http://aysps.gsu.edu/isp/index.html

Related research

Keywords: East African; Monetary Union; Optimal Currency Area; Structural Vector Autoregression Analysis;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
  2. Zhang, Zhaoyong & Sato, Kiyotaka & McAleer, Michael, 2004. "Asian monetary integration: a structural VAR approach," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 64(3), pages 447-458.
  3. Fidrmuc, Jarko & Iikka Korhonen, 2003. "Similarity of Supply and Demand Shocks Between the Euro Area and the CEECs," Royal Economic Society Annual Conference 2003 77, Royal Economic Society.
  4. Mkenda, Beatrice Kalinda, 2001. "Is East Africa an Optimum Currency Area?," Working Papers in Economics 41, University of Gothenburg, Department of Economics.
  5. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
  6. Ballabriga, Fernando & Sebastian, Miguel & Valles, Javier, 1999. "European asymmetries," Journal of International Economics, Elsevier, vol. 48(2), pages 233-253, August.
  7. David Fielding & Kalvinder Shields, 2000. "Modeling Macroeconomic Shocks in the CFA Franc Zone," Discussion Papers in Economics 00/7, Department of Economics, University of Leicester.
  8. Khamfula, Yohane & Huizinga, Harry, 2004. "The Southern African Development Community: suitable for a monetary union?," Journal of Development Economics, Elsevier, vol. 73(2), pages 699-714, April.
  9. Mongelli, Francesco Paolo, 2002. "ìNew" Views on the Optimum Currency Area Theory: What is EMU Telling US?," Royal Economic Society Annual Conference 2002 140, Royal Economic Society.
  10. Bayoumi, Tamim & Ostry, Jonathan D, 1997. "Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa: Implications for Optimum Currency Arrangements," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 412-44, October.
  11. Angeloni, Ignazio & Dedola, Luca, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 0004, European Central Bank.
  12. Michael Frenkel & Christiane Nickel, 2002. "How Symmetric Are the Shocks and the Shock Adjustment Dynamics Between the Euro Area and Central and Eastern European Countries (CEEC)+L2572?," IMF Working Papers 02/222, International Monetary Fund.
  13. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
  14. Guillaume, Dominique M. & Stasavage, David, 2000. "Improving Policy Credibility: Is There a Case for African Monetary Unions?," World Development, Elsevier, vol. 28(8), pages 1391-1407, August.
  15. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May.
  16. Rose, Andrew K, 2003. "A Meta-Analysis of the Effect of Common Currencies on International Trade," CEPR Discussion Papers 4341, C.E.P.R. Discussion Papers.
  17. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
  18. Longo, Robert & Sekkat, Khalid, 2004. "Economic Obstacles to Expanding Intra-African Trade," World Development, Elsevier, vol. 32(8), pages 1309-1321, August.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Asongu Simplice, 2012. "A Short-run Schumpeterian Trip to Embryonic African Monetary Zones," Working Papers 12/001, African Governance and Development Institute..
  2. Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis," Working Papers 12/006, African Governance and Development Institute..
  3. Asongu, Simplice A, 2013. "How would monetary policy matter in the proposed African monetary unions? Evidence from output and prices," MPRA Paper 48496, University Library of Munich, Germany.
  4. Gammadigbé, Vigninou, 2012. "Les cycles économiques des pays de l'UEMOA: synchrones ou déconnectés?
    [Business cycles in the WAEMU countries: synchronous or disconnected?]
    ," MPRA Paper 39400, University Library of Munich, Germany, revised Jun 2012.
  5. Balogun, Emmanuel Dele, 2009. "Alternative reconsideration of output growth differrential for the West African Monetary Zone," MPRA Paper 13416, University Library of Munich, Germany.
  6. Buigut, Steven & Valev, Neven T., 2009. "Benefits from Mutual Restraint in a Multilateral Monetary Union," World Development, Elsevier, vol. 37(3), pages 585-594, March.
  7. Thomas Kigabo RUSUHUZWA & Paul Robert MASSON, 2012. "Design and Implementation of a Common Currency Area in the East African Community," Working Papers tecipa-451, University of Toronto, Department of Economics.
  8. Laetitia Lepetit & Clovis Rugemintwari & Frank Strobel, 2012. "Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?," Working Papers hal-00916699, HAL.
  9. Tsangarides, Charalambos G. & Qureshi, Mahvash Saeed, 2008. "Monetary Union Membership in West Africa: A Cluster Analysis," World Development, Elsevier, vol. 36(7), pages 1261-1279, July.
  10. Qureshi, Mahvash Saeed & Tsangarides, Charalambos G., 2012. "Hard or Soft Pegs? Choice of Exchange Rate Regime and Trade in Africa," World Development, Elsevier, vol. 40(4), pages 667-680.
  11. Aamer S. Abu-Qarn & Suleiman Abu-Bader, 2008. "On the Optimality of a GCC Monetary Union: Structural VAR, Common Trends, and Common Cycles Evidence," The World Economy, Wiley Blackwell, vol. 31(5), pages 612-630, 05.
  12. Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.
  13. Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis," Working Papers 12/005, African Governance and Development Institute..
  14. Balogun, Emmanuel Dele, 2008. "An Empirical Test of Trade Gravity Model Criteria for the West African Monetary Zone (WAMZ)," MPRA Paper 7083, University Library of Munich, Germany.
  15. Chuku, Chuku, 2012. "The proposed eco: should West Africa proceed with a common currency?," MPRA Paper 43739, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ays:ispwps:paper0407. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Paul Benson).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.