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

  • Aamer S. Abu-Qarn
  • Suleiman Abu-Bader

The suitability of the proposed monetary union among the members of the Gulf Cooperation Council (GCC) is examined. The authors identify the underlying structural shocks that these economies are subject to and assess the extent to which the shocks are symmetric. Alternatively, the authors test for common trends and common business cycles among the GCC economies. They find that while the transitory demand shocks are typically symmetric, the permanent supply shocks are asymmetric. Furthermore, they do not find synchronous long-run and short-run movements in output. Despite the progress that has been made in terms of integration, the findings indicate that the conditions for forming a GCC monetary union have not as yet been met. Copyright 2008 The Authors.

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 31 (2008)
Issue (Month): 5 (05)
Pages: 612-630

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Handle: RePEc:bla:worlde:v:31:y:2008:i:5:p:612-630
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  1. Arie Arnon & Avia Spivak, 1996. "Monetary integration between the Israeli, Jordanian and Palestinian economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 132(2), pages 259-277, September.
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  3. Buigut, Steven K. & Valev, Neven T., 2005. "Is the proposed East African Monetary Union an optimal currency area? a structural vector autoregression analysis," World Development, Elsevier, vol. 33(12), pages 2119-2133, December.
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  7. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
  8. Zaidi, Iqbal, 1990. "Monetary coordination among the gulf cooperation council countries," World Development, Elsevier, vol. 18(5), pages 759-768, May.
  9. 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..
  10. 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.
  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  12. Belkacem Laabas and Imed Limam, . "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center.
  13. Behrouz Guerami & S. Nuri Erbas & George T. Abed, 2003. "The GCC Monetary Union; Some Considerations for the Exchange Rate Regime," IMF Working Papers 03/66, International Monetary Fund.
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