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Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence

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  • Guglielmo Maria Caporale
  • Hector Carcel
  • Luis A. Gil-Alana

Abstract

This paper examines G-PPP and business cycle synchronization in the East Africa Community with the aim of assessing the prospects for a monetary union. The univariate fractional integration analysis shows that the individual series exhibit unit roots and are highly persistent. The fractional bivariate cointegration tests (see Marinucci and Robinson, 2001) suggest that there exist bivariate fractional cointegrating relationships between the exchange rate of the Tanzanian shilling and those of the other EAC countries, and also between the exchange rates of the Rwandan franc, the Burundian franc and the Ugandan shilling. The FCVAR results (see Johansen and Nielsen, 2012) imply the existence of a single cointegrating relationship between the exchange rates of the EAC countries. On the whole, there is evidence in favour of G-PPP. In addition, there appears to be a high degree of business cycle synchronization between these economies. On both grounds, one can argue that a monetary union should be feasible.

Suggested Citation

  • Guglielmo Maria Caporale & Hector Carcel & Luis A. Gil-Alana, 2018. "Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence," CESifo Working Paper Series 7073, CESifo.
    • Handle: RePEc:ces:ceswps:_7073
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    References listed on IDEAS

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    Cited by:

    1. Ebenezer Olamide & Andrew Maredza & Kanayo Ogujiuba, 2022. "Monetary Policy, External Shocks and Economic Growth Dynamics in East Africa: An S-VAR Model," Sustainability, MDPI, vol. 14(6), pages 1-19, March.
    2. Aweng Peter Majok Garang & Hatice Erkekoglu, 2020. "Business Cycles Synchronisation and Symmetries in the Transition to East African Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 88(4), pages 495-517, December.

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    More about this item

    Keywords

    East Africa Community; monetary union; optimal currency areas; fractional integration and cointegration; business cycle synchronization; Hodrick-Prescott filter;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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