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Is the East African Community an Optimum Currency Area?

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Author Info
Kishor, N. Kundan
Ssozi, John
Abstract

This paper investigates whether the East African Community (EAC) constitutes an optimum currency area (OCA) by estimating the degree and evolution of business cycle synchronization between the EAC countries. We also investigate whether the degree of business cycle synchronization has improved after signing of the EAC treaty in 1999. The degree of business cycle synchronization is estimated using an unobserved components model of structural shocks obtained from a structural VAR model. We then use a time-varying parameter model to estimate the evolution of business cycle synchronization. Our results indicate that the proportion of shocks that is common across different countries is small, implying weak synchronization. However, we also find that the degree of synchronization has improved after signing of the EAC treaty in 1999.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17645.

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Date of creation: 03 Oct 2009
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Handle: RePEc:pra:mprapa:17645

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Related research
Keywords: East African Community; Optimum Currency Area; Business Cycle Synchronization; Structural VAR; State-Space Model;

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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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.:
  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. [Downloadable!] (restricted)
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  2. Lucio Castro, 2005. "Regional Trade Integration in East Africa: Trade and Revenue Impacts of the Planned East African Community Customs Union," International Trade 0509005, EconWPA. [Downloadable!]
  3. Ignazio Angeloni & Luca Dedola, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 4, European Central Bank. [Downloadable!]
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  4. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, vol. 40(1), pages 15-32, January. [Downloadable!] (restricted)
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