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

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  • Abu-Qarn, Aamer
  • Abu-Bader, Suleiman

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 are typically symmetric, the permanent supply shocks are asymmetric. Furthermore, we do not find synchronous long-run and short-run movements in output. Despite the progress that has been made in terms of integration, our findings indicate that the conditions for forming a GCC monetary union have not as yet been met.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 971.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:971

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

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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, Wiley Blackwell, Wiley Blackwell, vol. 24(9), pages 1161-1178, 09.
  2. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers, National Bureau of Economic Research, Inc 2737, National Bureau of Economic Research, Inc.
  3. 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, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University paper0407, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  4. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
  5. Barry J. Eichengreen & Tamim Bayoumi, 1993. "Monetary and Exchange Rate Arrangements for Nafta," IMF Working Papers, International Monetary Fund 93/20, International Monetary Fund.
  6. Zaidi, Iqbal, 1990. "Monetary coordination among the gulf cooperation council countries," World Development, Elsevier, Elsevier, vol. 18(5), pages 759-768, May.
  7. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series, European Central Bank 31, European Central Bank.
  8. Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, Elsevier, vol. 32(2), pages 202-211, June.
  9. Arie Arnon & Avia Spivak, 1996. "Monetary integration between the Israeli, Jordanian and Palestinian economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 132(2), pages 259-277, September.
  10. Ugo Fasano-Filho & Andrea Schaechter, 2003. "Monetary Union Among Member Countries of the Gulf Cooperation Council," IMF Occasional Papers, International Monetary Fund 223, International Monetary Fund.
  11. Belkacem Laabas and Imed Limam, . "Are GCC Countries Ready for Currency Union?," API-Working Paper Series, Arab Planning Institute - Kuwait, Information Center 0203, Arab Planning Institute - Kuwait, Information Center.
  12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  13. Behrouz Guerami & S. Nuri Erbas & George T. Abed, 2003. "The GCC Monetary Union," IMF Working Papers, International Monetary Fund 03/66, International Monetary Fund.
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Cited by:
  1. Jean Louis, Rosmy & Balli, Faruk & Osman, Mohamed, 2010. "On the choice of an anchor for the GCC currency: does the symmetry of shocks extend to both the oil and the non-oil sectors," MPRA Paper, University Library of Munich, Germany 38056, University Library of Munich, Germany.
  2. Jean Louis, Rosmy & Balli, Faruk & Osman, Mohammad, 2009. "Is the US dollar a suitable anchor for the newly proposed GCC currency?," MPRA Paper, University Library of Munich, Germany 34003, University Library of Munich, Germany, revised 2010.
  3. Weshah Razzak, 2009. "On the GCC Currency Union," EERI Research Paper Series, Economics and Econometrics Research Institute (EERI), Brussels EERI_RP_2009_29, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Etienne Farvaque & Norimichi Matsueda, 2010. "On the Sustainability of a Monetary Union under External Shocks: a Theoretical Result and Its Application to the Gulf Countries," Discussion Paper Series, School of Economics, Kwansei Gakuin University 66, School of Economics, Kwansei Gakuin University, revised Dec 2010.
  5. Buiter, Willem H, 2008. "Economic, Political, and Institutional Prerequisites for Monetary Union Among the Members of the Gulf Cooperation Council," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6639, C.E.P.R. Discussion Papers.
  6. 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, University Library of Munich, Germany 11611, University Library of Munich, Germany.
  7. Omotor, Douglason G. & Niringiye, Aggrey, 2011. "Optimum Currency Area and Shock Asymmetry: A Dynamic Analysis of the West African Monetary Zone (WAMZ)," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 71-82, September.
  8. Adom, Assandé Désiré & Sharma, Subhash C. & Morshed, A.K.M. Mahbub, 2010. "Economic integration in Africa," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 50(3), pages 245-253, August.
  9. Ahmed AlKholifey & Ali Alreshan, 2010. "GCC monetary union," IFC Bulletins chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Proceedings of the SARB/IFC seminar on "Economic and financial convergence en route to regional economic integration: experience, prospects and statis, volume 32, pages 17-51 Bank for International Settlements.
  10. Rosmy Jean Louis & Faruk Balli & Mohamed Osman, 2012. "On the feasibility of monetary union among Gulf Cooperation Council (GCC) countries: does the symmetry of shocks extend to the non-oil sector?," Journal of Economics and Finance, Springer, Springer, vol. 36(2), pages 319-334, April.
  11. Stefan Eichler & Alexander Karmann, 2011. "Optimum Currency Areas in Emerging Market Regions: Evidence Based on the Symmetry of Economic Shocks," Open Economies Review, Springer, Springer, vol. 22(5), pages 935-954, November.

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