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

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Author Info
Suleiman Abu-Bader () (Department of Economics, Ben-Gurion University of the Negev)
Aamer Abu-Qarn () (Department of Economics, Ben-Gurion University of the Negev)

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Abstract

This paper examines the suitability of the proposed monetary union among the members of the Gulf Cooperation Council (GCC). To do so, we identify the underlying structural shocks that these economies are subject to and assess the extent to which the shocks are symmetric. Additionally, we test for common trends and common business cycles among the GCC economies. We find that while the transitory demand shocks areare typically symmetric, the permanent supply shocks are asymmetric. Furthermore, we do not find synchronous long-run and short-rum movements in output. Despite the progress that has been made in terms of integration, our findings indicate thet the conditions for forming a GCC monetary union have not as yet been met.

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File URL: http://www.econ.bgu.ac.il/papers/225.pdf
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Publisher Info
Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 225.

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Length: 32 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:bgu:wpaper:225

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Related research
Keywords: Gulf Cooperation Council; GCC; optimal monetary union; cointegration; common cycles; structural VAR;

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Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

References listed on IDEAS
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  1. Humayon A. Dar & John R. Presley, 2001. "The Gulf Co-operation Council: A Slow Path to Integration?," The World Economy, Blackwell Publishing, vol. 24(9), pages 1161-1178, 09. [Downloadable!] (restricted)
  2. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec.. [Downloadable!] (restricted)
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  3. Belkacem Laabas and Imed Limam, . "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center. [Downloadable!]
  4. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank. [Downloadable!]
  5. 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. [Downloadable!] (restricted)
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  6. 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. [Downloadable!] (restricted)
  7. Zaidi, Iqbal, 1990. "Monetary coordination among the gulf cooperation council countries," World Development, Elsevier, vol. 18(5), pages 759-768, May. [Downloadable!] (restricted)
  8. Ugo Fasano-Filho & Andrea Schaechter, 2003. "Monetary Union Among Member Countries of the Gulf Cooperation Council," IMF Occasional Papers 223, International Monetary Fund.
  9. S. Nuri Erbas & Behrouz Guerami & George T. Abed, 2003. "The GCC Monetary Union: Some Considerations for the Exchange Rate Regime," IMF Working Papers 03/66, International Monetary Fund. [Downloadable!]
  10. Tamim Bayoumi & Barry J. Eichengreen, 1993. "Monetary and Exchange Rate Arrangements for NAFTA," IMF Working Papers 93/20, International Monetary Fund.
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  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Buiter, Willem H, 2008. "Economic, Political, and Institutional Prerequisites for Monetary Union Among the Members of the Gulf Cooperation Council," CEPR Discussion Papers 6639, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. 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. [Downloadable!]
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