Is East Africa an Optimum Currency Area?
AbstractThe paper investigates whether the East African Community, comprising of Kenya, Tanzania, and Uganda, constitutes an optimum currency area or not. The East African Community has been revived, and one of the long-term objectives of the Community is to have a common currency. The paper employs the Generalised Purchasing Power Parity method, and various criteria suggested by the theory of Optimum Currency Areas to investigate the optimality of the Community as a currency area. While the various indices that we calculated based on the theory of Optimum Currency Areas gave mixed verdicts, the Generalised Purchasing Power Parity (G-PPP) method supports the formation of a currency union in the region.Using the G-PPP method, we were able to establish cointegration between the real exchange rates in East Africa for the period 1981 to 1998, and even for the period 1990 to 1998. This finding suggests that the three countries tend to be affected by similar shocks.
Download InfoIf 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.
Bibliographic InfoPaper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 41.
Length: 52 pages
Date of creation: 30 Apr 2001
Date of revision:
Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
More information through EDIRC
Optimum Currency Area; Cointegration; Purchasing Power Parity; East Africa; Kenya; Tanzania; Uganda.;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F15 - International Economics - - Trade - - - Economic Integration
- O55 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Africa
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.:
- Horváth, Július & Grabowski, Richard, 1997. "Prospects of African Integration in Light of the Theory of Optimum Currency Areas," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 1-25.
- Bayoumi, Tamim & Eichengreen, Barry, 1998.
"Exchange rate volatility and intervention: implications of the theory of optimum currency areas,"
Journal of International Economics,
Elsevier, vol. 45(2), pages 191-209, August.
- Bayoumi, Tamim & Eichengreen, Barry, 1998. "Exchange Rate Volatility and Intervention: Implications of the Theory of Optimum Currency Areas," CEPR Discussion Papers 1982, C.E.P.R. Discussion Papers.
- Chantal Dupasquier & Jocelyn Jacob, 1997. "European economic and monetary union: Background and implications," Bank of Canada Review, Bank of Canada, vol. 1997(Autumn), pages 3-28.
- Meshack Tjirongo, 1995. "Short-term stabilization versus long-term price stability: evaluating Namibia's membership of the Common Monetary Area," CSAE Working Paper Series 1995-18, Centre for the Study of African Economies, University of Oxford.
- Jonung, Lars & Sjöholm, Fredrik, 1998.
"Should Finland and Sweden Form a Monetary Union?,"
Working Paper Series in Economics and Finance
224, Stockholm School of Economics.
- Tamim Bayoumi & Jonathan David Ostry, 1995. "Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa," IMF Working Papers 95/142, International Monetary Fund.
- Frankel, Jeffrey A. & Rose, Andrew K., 1997.
"Economic Structure and the Decision to Adopt a Common Currency,"
611, Stockholm University, Institute for International Economic Studies.
- Frankel, J-A & Rose, A-K, 1996. "Economic Structure and the Decision to Adopt a Common Currency," Papers 611, Stockholm - International Economic Studies.
- Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Economic Structure and the Decision to Adopt a Common Currency," Center for International and Development Economics Research, Working Paper Series qt0bw0h379, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- Jeffrey A. Frankel and Andrew K. Rose., 1996. "Economic Structure and the Decision to Adopt a Common Currency," Center for International and Development Economics Research (CIDER) Working Papers C96-073, University of California at Berkeley.
- George S. Tavlas, 1993. "The ‘New’ Theory of Optimum Currency Areas," The World Economy, Wiley Blackwell, vol. 16(6), pages 663-685, November.
- Benjamin J. Cohen, 1993. "Beyond Emu: The Problem Of Sustainability," Economics and Politics, Wiley Blackwell, vol. 5(2), pages 187-203, 07.
- Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
- Enders, Walter & Hurn, Stan, 1994. "Theory and Tests of Generalized Purchasing-Power Parity: Common Trends and Real Exchange Rates in the Pacific Rim," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 179-90, June.
- 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.
- Carolyn Jenkins & Lynne Thomas, 1997. "Is Southern Africa ready for regional monetary integration?," CSAE Working Paper Series 1997-03, Centre for the Study of African Economies, University of Oxford.
- De Grauwe, Paul & Vanhaverbeke, Wim, 1991. "Is Europe an Optimum Currency Area? Evidence from Regional Data," CEPR Discussion Papers 555, C.E.P.R. Discussion Papers.
- Buigut, Steven K. & Valev, Neven T., 2005.
"Is the proposed East African Monetary Union an optimal currency area? a structural vector autoregression analysis,"
Elsevier, vol. 33(12), pages 2119-2133, December.
- 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 paper0407, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Peter Wilson & Choy Keen Meng, 2006.
"Prospects For Enhanced Exchange Rate Cooperation in East Asia: Some Preliminary Findings from Generalized PPP Theory,"
SCAPE Policy Research Working Paper Series
0601, National University of Singapore, Department of Economics, SCAPE.
- Peter Wilson & Keen Meng Choy, 2007. "Prospects for enhanced exchange rate cooperation in East Asia: some preliminary findings from generalized PPP theory," Applied Economics, Taylor & Francis Journals, vol. 39(8), pages 981-995.
- Warin, Thierry & Wunnava, Phanindra V. & Tengia, Optat & Wandschneider, Kirsten, 2009.
"Southern African Economic Integration: Evidence from an Augmented Gravity Model,"
IZA Discussion Papers
4316, Institute for the Study of Labor (IZA).
- Moshi Optat Herman & Kirsten Wandschneider & Thierry Warin & Phanindra Wunnava, 2011. "Southern African Economic Integration: Evidence from an Augmented Gravity Model," The African Finance Journal, Africagrowth Institute, vol. 13(1), pages 1-13.
- Meredith A. McIntyre, 2005. "Trade Integration in the East African Community," IMF Working Papers 05/143, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie Andersson).
If references are entirely missing, you can add them using this form.