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.
|Date of creation:||01 Sep 2004|
|Contact details of provider:|| Phone: 404-413-0235|
Web page: http://aysps.gsu.edu/isp/index.html
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.:
- Ballabriga, Fernando & Sebastian, Miguel & Valles, Javier, 1999. "European asymmetries," Journal of International Economics, Elsevier, vol. 48(2), pages 233-253, August.
- Frankel, Jeffrey A & Rose, Andrew K, 1998.
"The Endogeneity of the Optimum Currency Area Criteria,"
Royal Economic Society, vol. 108(449), pages 1009-1025, July.
- 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, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
- 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.
- 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.
- 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 655-673, September.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Mongelli, Francesco Paolo, 2002. ""New" views on the optimum currency area theory: what is EMU telling us?," Working Paper Series 0138, European Central Bank.
- Mkenda, Beatrice Kalinda, 2001. "Is East Africa an Optimum Currency Area?," Working Papers in Economics 41, University of Gothenburg, Department of Economics.
- Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
- Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
- Tamim Bayoumi and Barry Eichengreen., 1992. "Shocking Aspects of European Monetary Unification," Economics Working Papers 92-187, University of California at Berkeley.
- 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 412-444, October.
- 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.
- 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.
- 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.
- Zhaoyong Zhang & Kiyotaka Sato & Michael McAleer, 2003. "Asian Monetary Integration: A Structural VAR Approach," CIRJE F-Series CIRJE-F-212, CIRJE, Faculty of Economics, University of Tokyo.
- 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.
- Longo, Robert & Sekkat, Khalid, 2004. "Economic Obstacles to Expanding Intra-African Trade," World Development, 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.
- 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.
- 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.
- 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, 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,. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ays:ispwps:paper0407. 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: (Paul Benson)
If references are entirely missing, you can add them using this form.