Is the proposed East African Monetary Union an optimal currency area? a structural vector autoregression analysis
The treaty of 1999 to revive the defunct East African Community (EAC) ratified by Kenya, Uganda, and Tanzania came into force on July 2000 with the objective of fostering a closer co-operation in political, economic, social, and cultural fields. To achieve this, an East Africa Customs Union protocol was signed in March 2004. A Common Market, a Monetary Union, and ultimately a Political Federation of East Africa states is planned. Though the question of a monetary union has been discussed in the political arena there has been no corresponding empirical study on the economic viability of such a union. This article fills the gap and assesses whether the political force driving the EAC towards a monetary union has economic basis. In particular, we focus on the symmetry of the underlying shocks across the East African economies as a precondition for forming an optimum currency area (OCA). As Mundell (1961) and McKinnon (1963) describe, the member countries of a monetary union do not have independent monetary policy, which differs from that of the union as a whole; governments cannot use monetary and exchange rate policies to react to a country-specific shock. How serious this limitation is for the union countries depends on the degree of asymmetry of shocks and the speed with which the economies adjust to these shocks. If disturbances are distributed symmetrically across union countries, a common response will suffice. If, however, the countries face mostly asymmetric shocks, the retention of policy autonomy is beneficial.
(This abstract was borrowed from another version of this item.)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Jeffrey A. Frankel & Andrew K. Rose, 1996.
"The Endogeneity of the Optimum Currency Area Criteria,"
NBER Working Papers
5700, National Bureau of Economic Research, Inc.
- Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July.
- Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
- Guillaume, Dominique M. & Stasavage, David, 2000. "Improving Policy Credibility: Is There a Case for African Monetary Unions?," World Development, Elsevier, vol. 28(8), pages 1391-1407, August.
- Zhaoyong Zhang & Kiyotaka Sato & Michael McAleer, 2003.
"Asian Monetary Integration: A Structural VAR Approach,"
CIRJE-F-212, CIRJE, Faculty of Economics, University of Tokyo.
- Zhang, Zhaoyong & Sato, Kiyotaka & McAleer, Michael, 2004. "Asian monetary integration: a structural VAR approach," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 64(3), pages 447-458.
- Michael Frenkel & Christiane Nickel, 2002. "How Symmetric Are the Shocks and the Shock Adjustment Dynamics Between the Euro Area and Central and Eastern European Countries?," IMF Working Papers 02/222, International Monetary Fund.
- Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
- 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.
- Tom Doan, . "BQDODRAWS: RATS procedure to implement Monte Carlo draws from a VAR with Blanchard-Quah factorization," Statistical Software Components RTS00030, Boston College Department of Economics.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
- Tom Doan, . "RATS programs to replicate Blanchard and Quah AER 1989," Statistical Software Components RTZ00017, Boston College Department of Economics.
- Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
- Mongelli, Francesco Paolo, 2002.
""New" views on the optimum currency area theory: what is EMU telling us?,"
Working Paper Series
0138, European Central Bank.
- Mongelli, Francesco Paolo, 2002. "ìNew" Views on the Optimum Currency Area Theory: What is EMU Telling US?," Royal Economic Society Annual Conference 2002 140, Royal Economic Society.
- Fielding, David & Shields, Kalvinder, 2001.
"Modelling macroeconomic shocks in the CFA Franc Zone,"
Journal of Development Economics,
Elsevier, vol. 66(1), pages 199-223, October.
- David Fielding & Kalvinder Shields, 2000. "Modeling Macroeconomic Shocks in the CFA Franc Zone," Discussion Papers in Economics 00/7, Department of Economics, University of Leicester.
- Bayoumi, Tamim & Eichengreen, Barry, 1992.
"Shocking Aspects of European Monetary Unification,"
CEPR Discussion Papers
643, C.E.P.R. Discussion Papers.
- Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
- Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley.
- Fidrmuc, Jarko & Korhonen, Iikka, 2001.
"Similarity of supply and demand shocks between the Euro area and the CEECs,"
BOFIT Discussion Papers
14/2001, Bank of Finland, Institute for Economies in Transition.
- Fidrmuc, Jarko & Korhonen, Iikka, 2003. "Similarity of supply and demand shocks between the euro area and the CEECs," Economic Systems, Elsevier, vol. 27(3), pages 313-334, September.
- Fidrmuc, Jarko & Iikka Korhonen, 2003. "Similarity of Supply and Demand Shocks Between the Euro Area and the CEECs," Royal Economic Society Annual Conference 2003 77, Royal Economic Society.
- Paul R. Masson & Xavier Debrun & Catherine A. Pattillo, 2002.
"Monetary Union in West Africa; Who Might Gain, Who Might Lose, and Why?,"
IMF Working Papers
02/226, International Monetary Fund.
- Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May.
- Tamim Bayoumi & Jonathan David Ostry, 1995.
"Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa; Implications for Optimum Currency Arrangements,"
IMF Working Papers
95/142, International Monetary Fund.
- 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.
- Mkenda, Beatrice Kalinda, 2001. "Is East Africa an Optimum Currency Area?," Working Papers in Economics 41, University of Gothenburg, Department of Economics.
- Ballabriga, Fernando & Sebastian, Miguel & Valles, Javier, 1999. "European asymmetries," Journal of International Economics, Elsevier, vol. 48(2), pages 233-253, August.
- Longo, Robert & Sekkat, Khalid, 2004.
"Economic Obstacles to Expanding Intra-African Trade,"
Elsevier, vol. 32(8), pages 1309-1321, August.
- Roberto Longo & Khalid Sekkat, 2004. "Economic obstacles to expanding intra-African trade," ULB Institutional Repository 2013/7358, ULB -- Universite Libre de Bruxelles.
- Angeloni, Ignazio & Dedola, Luca, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 0004, European Central Bank.
- Andrew K. Rose & T. D. Stanley, 2005.
"A Meta-Analysis of the Effect of Common Currencies on International Trade ,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 19(3), pages 347-365, 07.
- Andrew Rose, 2004. "A Meta-Analysis of the Effect of Common Currencies on International Trade," NBER Working Papers 10373, National Bureau of Economic Research, Inc.
- Rose, Andrew K, 2003. "A Meta-Analysis of the Effect of Common Currencies on International Trade," CEPR Discussion Papers 4341, C.E.P.R. Discussion Papers.
- Khamfula, Yohane & Huizinga, Harry, 2004. "The Southern African Development Community: suitable for a monetary union?," Journal of Development Economics, Elsevier, vol. 73(2), pages 699-714, April.
When requesting a correction, please mention this item's handle: RePEc:eee:wdevel:v:33:y:2005:i:12:p:2119-2133. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.