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De Facto Exchange Rate Policies in the MENA Region: Toward Deeper Cooperation

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Listed:
  • Bassem Kamar

    (International University of Monaco)

Abstract

The adoption of exchange rate policy coordination and cooperation within a regional framework becomes a necessity to avoid the self-fulfilling exchange rate crises, especially in the context of the MENA region, which is cursed with significant regional political instability. In this paper we have focused our attention on the Agadir countries, namely Egypt, Jordan, Morocco and Tunisia. According to the results of our econometric test, the real exchange rate behavior in our sample countries has been influenced in different ways by the theoretical determinants (the government spending policy, the monetary policy, the trade openness, the capital liberalization, and the terms of trade). We recommend that the Agadir countries should envisage the coordination of their equilibrium exchange rates through the creation of a common equilibrium central parity reflecting a weighted average of all their economic partners, bordered by a +/- 10 percent fluctuation band, taking into consideration the potential increasing role of the Euro in the Agadir countries’ trade induced by the Euromed agreement. Deeper cooperation would also require the creation of common liquidity fund, similar to the one in place in South East Asia (the Chiang Mai Agreement) in order to enhance the accumulation of substantial international currency reserves, which can allow the participating countries’ central banks to provide immediate liquidity support for any member that experiences short run balance of payments deficits. This cooperation should take place not only among the four Agadir countries but rather within the framework of the PAFTA, and with the support of the EU.

Suggested Citation

  • Bassem Kamar, 2004. "De Facto Exchange Rate Policies in the MENA Region: Toward Deeper Cooperation," Working Papers 0408, Economic Research Forum, revised 01 Aug 2004.
    • Handle: RePEc:erg:wpaper:0408
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    References listed on IDEAS

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    1. repec:idb:brikps:9188 is not listed on IDEAS
    2. Mr. Andrea Bubula & Ms. Inci Ötker, 2002. "The Evolution of Exchange Rate Regimes Since 1990: Evidence From De Facto Policies," IMF Working Papers 2002/155, International Monetary Fund.
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    Cited by:

    1. Osama M. Badr & Ahmed F. El-khadrawi, 2018. "Exchange Rate Volatility and Trade: An Empirical Investigation from the Egyptian Economy," Applied Economics and Finance, Redfame publishing, vol. 5(4), pages 140-149, July.
    2. Jamal Bouoiyour & Refk Selmi, 2015. "Exchange volatility and export performance in Egypt: New insights from wavelet decomposition and optimal GARCH model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(2), pages 201-227, March.
    3. Memet Agustiar, 2018. "The Single Currency For Islamic Nations: Do Heterogeneities Matter?," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 4(2), pages 223-236, November.
    4. Bouoiyour, Jamal & Selmi, Refk, 2012. "Modeling exchange volatility in Egypt using GARCH models," MPRA Paper 49131, University Library of Munich, Germany, revised Mar 2013.
    5. Bouoiyour, Jamal & Selmi, Refk, 2014. "Exchange Uncertainty and Export Performance in Egypt: New Insights from Wavelet Decomposition and Optimal GARCH Model," MPRA Paper 59568, University Library of Munich, Germany, revised 2014.
    6. repec:idn:jimfjn:v:4:y:2018:i:2:p:1-14 is not listed on IDEAS
    7. Chortareas, Georgios & Cipollini, Andrea & Eissa, Mohamed Abdelaziz, 2012. "Switching to floating exchange rates, devaluations, and stock returns in MENA countries," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 119-127.
    8. Belhadj, Aam, 2009. "Heterogeneity of the Maghreb: the results of optimized monetary rules," MPRA Paper 40374, University Library of Munich, Germany.
    9. Zeyneb GUELLIL & Fatima Zohra MAROUF & Mohammed Benbouziane, 2017. "Exchange Rate Regimes and Economic Growth in Developing Countries: An Empirical Study Using Panel Data from 1980 to 2013," MIC 2017: Managing the Global Economy; Proceedings of the Joint International Conference, Monastier di Treviso, Italy, 24–27 May 2017,, University of Primorska Press.
    10. Obiyathulla Ismath Bacha, 2008. "A common currency area for MENA countries? A VAR analysis of viability," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 3(2), pages 197-215, April.

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