External and Regional Shocks in the GCC Region: Implications for a Common Exchange Rate Regime
Using a structural cointegrated VAR, this study examines the impacts of external shocks originating from the dollar, euro and yen zones as well as the regional shocks on the oilrich countries of the Gulf Cooperation Council (GCC), viewed as a prospective monetary union. It focuses on the implications of shock impacts for selecting an apposite common exchange rate regime. The SVECM variance decomposition and impulse response analyses strongly underscore the relative impacts of the two external shocks over the regional ones. The findings imply that the world’s three major currencies should figure highly in the GCC’s common basket of currencies. Accordingly, a transitional movement to a more flexible exchange rate may be desirable for these trade-dependent economies in the long run, as argued in the optimal currency literature for developing countries.
|Date of creation:||06 Jan 2008|
|Date of revision:||06 Jan 2008|
|Publication status:||Published by The Economic Research Forum (ERF)|
|Contact details of provider:|| Postal: 21 Al-Sad Al Aaly St. Dokki, Giza|
Web page: http://www.erf.org.eg
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- Paul de Grauwe & Francesco Paolo Mongelli, 2005.
"Endogeneities of Optimum Currency Areas: What brings Countries Sharing a Single Currency Closer together?,"
Working Papers de Economia (Economics Working Papers)
29, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
- Mongelli, Francesco Paolo & De Grauwe, Paul, 2005. "Endogeneities of optimum currency areas: what brings countries sharing a single currency closer together?," Working Paper Series 468, European Central Bank.
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- Crowder, William J. & Wohar, Mark E., 1998. "Cointegration, forecasting and international stock prices," Global Finance Journal, Elsevier, vol. 9(2), pages 181-204.
- Behrouz Guerami & S. Nuri Erbas & George T. Abed, 2003. "The GCC Monetary Union; Some Considerations for the Exchange Rate Regime," IMF Working Papers 03/66, International Monetary Fund. Full references (including those not matched with items on IDEAS)
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