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On The Optimality Of A Gcc Monetary Union: Structural Var, Common Trends And Common Cycles Evidence

Author

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  • Suleiman Abu-Bader

    () (BGU)

  • Aamer S. Abu-Qarn

    () (BGU)

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.

Suggested Citation

  • Suleiman Abu-Bader & Aamer S. Abu-Qarn, 2006. "On The Optimality Of A Gcc Monetary Union: Structural Var, Common Trends And Common Cycles Evidence," Working Papers 0611, Ben-Gurion University of the Negev, Department of Economics.
  • Handle: RePEc:bgu:wpaper:0611
    as

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    References listed on IDEAS

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    1. 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.
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    6. Belkacem Laabas and Imed Limam, "undated". "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center.
    7. Ali Darrat & Fatima Al-Shamsi, 2005. "On the path of integration in the Gulf region," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 1055-1062.
    8. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
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    Cited by:

    1. Rosmy Jean Louis & Faruk Balli & Mohamed Osman, 2012. "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?," International Economics and Economic Policy, Springer, vol. 9(1), pages 83-110, March.
    2. Hem Basnet & Subhash Sharma, 2015. "Exchange rate movements and policy coordination in Latin America," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 679-696, October.
    3. 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;Academy of Economics and Finance, vol. 36(2), pages 319-334, April.
    4. Weshah Razzak, "undated". "On the GCC Currency Union," API-Working Paper Series 0910, Arab Planning Institute - Kuwait, Information Center.
    5. repec:jfr:rwe111:v:8:y:2017:i:1:p:15-23 is not listed on IDEAS
    6. Willem H. Buiter, 2010. "Economic, Political and Institutional Prerequisites for Monetary Union Among the Members of the Gulf Cooperation Council," Chapters,in: Currency Union and Exchange Rate Issues, chapter 3 Edward Elgar Publishing.
    7. repec:wsi:medjxx:v:04:y:2012:i:01:n:s1793812012500010 is not listed on IDEAS
    8. Rosmy Jean Louis & Mohamed Osman & Faruk Balli, 2010. "Is the US Dollar a Suitable Anchor for the Newly Proposed GCC Currency?," The World Economy, Wiley Blackwell, vol. 33(12), pages 1898-1922, December.
    9. Adom, Assandé Désiré & Sharma, Subhash C. & Morshed, A.K.M. Mahbub, 2010. "Economic integration in Africa," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 245-253, August.
    10. Ahmed AlKholifey & Ali Alreshan, 2010. "GCC monetary union," IFC Bulletins chapters,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.
    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, vol. 22(5), pages 935-954, November.
    12. 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, vol. 0(3), pages 71-82, September.
    13. Abdulrazak Al Faris, 2010. "Currency Union in the GCC Countries: History, Prerequisites and Implications," Chapters,in: Currency Union and Exchange Rate Issues, chapter 2 Edward Elgar Publishing.
    14. Magda Kandil & Mohamed Trabelsi, 2012. "Is The Announced Monetary Union In Gcc Countries Feasible? A Multivariate Structural Var Approach," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-18.
    15. repec:bla:worlde:v:40:y:2017:i:10:p:2153-2171 is not listed on IDEAS
    16. Murshed, Hasan & Nakibullah, Ashraf, 2015. "Price level and inflation in the GCC countries," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 239-252.

    More about this item

    Keywords

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

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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