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Are East African Countries Ready for a Common Currency? A Structural Vector Autoregression Analysis

Author

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  • Matteo Falagiarda

    (University of Trento)

Abstract

The East African Community (EAC), a regional block composed of Burundi, Kenya, Rwanda, Tanzania and Uganda, has monetary integration as one of its short-term goals. This paper empirically investigates the suitability of such a project by using two different Structural Vector Autoregression (SVAR) models, which allow to identify the underlying structural shocks of the economies. The results indicate that the business cycles of these countries are generally not symmetric, and the five economies respond quite differently to shocks, suggesting that the EAC does not yet constitute an Optimum Currency Area (OCA).

Suggested Citation

  • Matteo Falagiarda, 2009. "Are East African Countries Ready for a Common Currency? A Structural Vector Autoregression Analysis," Rivista di Politica Economica, SIPI Spa, vol. 99(4), pages 153-204, OCTOBER-D.
    • Handle: RePEc:rpo:ripoec:v:99:y:2009:i:4:p:153-204
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    More about this item

    Keywords

    optimum currency areas; monetary union; structural vector autoregressions; East African Community;
    All these keywords.

    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; State Space Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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