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Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?

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  • Laetitia Lepetit

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société)

  • Clovis Rugemintwari

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - UNILIM - Université de Limoges - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société)

  • Frank Strobel

    () (University of Birmingham [Birmingham])

Abstract

We examine prospects for a monetary union in the East African Community (EAC) by developing a stylized model of policymakers' decision problem that allows for uncertain benefits derived from monetary,financial and fiscal stability, and then calibrating the model for the EAC for the period 2003-2010. When policymakers properly allow for uncertainty, none of the countries wants to pursue a monetary union based on either monetary or financial stability grounds, and only Rwanda might favor it on fiscal stability grounds; we argue that robust institutional arrangements assuring substantial improvements in monetary, financial and fiscal stability are needed to compensate.

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  • Laetitia Lepetit & Clovis Rugemintwari & Frank Strobel, 2012. "Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?," Working Papers hal-00916699, HAL.
  • Handle: RePEc:hal:wpaper:hal-00916699 Note: View the original document on HAL open archive server: https://hal-unilim.archives-ouvertes.fr/hal-00916699
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    References listed on IDEAS

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    1. Buigut, Steven K. & Valev, Neven T., 2005. "Is the proposed East African Monetary Union an optimal currency area? a structural vector autoregression analysis," World Development, Elsevier, vol. 33(12), pages 2119-2133, December.
    2. Arthur Hazlewood, 1979. "The End Of The East African Community: What Are The Lessons For Regional Integration Schemes ?," Journal of Common Market Studies, Wiley Blackwell, vol. 18(1), pages 40-58, September.
    3. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    5. Narayan K. Kishor & John Ssozi, 2011. "Business Cycle Synchronization in the Proposed East African Monetary Union: An Unobserved Component Approach," Review of Development Economics, Wiley Blackwell, vol. 15(4), pages 664-675, November.
    6. Frank Strobel, 2011. "Bank insolvency risk and different approaches to aggregate Z-score measures: a note," Applied Economics Letters, Taylor & Francis Journals, vol. 18(16), pages 1541-1543.
    7. Frank Strobel, 2007. "Joining European Monetary Union: A Real Options Perspective," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(1), pages 105-115, February.
    8. Strobel, Frank, 2005. "Monetary integration and inflation preferences: A real options analysis," European Economic Review, Elsevier, vol. 49(4), pages 845-860, May.
    9. Xavier Debrun & Catherine A Pattillo & Paul R Masson, 2010. "Should African Monetary Unions Be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa," IMF Working Papers 10/157, International Monetary Fund.
    10. Sarah Sanya & Matthew Gaertner, 2012. "Assessing Bank Competition within the East African Community," IMF Working Papers 12/32, International Monetary Fund.
    11. Strobel Frank, 2009. "Financial Fragility and Crisis Union in the Asia-Pacific Region," Global Economy Journal, De Gruyter, vol. 9(2), pages 1-12, June.
    12. Thomas Kigabo RUSUHUZWA & Paul Robert MASSON, 2012. "Design and Implementation of a Common Currency Area in the East African Community," Working Papers tecipa-451, University of Toronto, Department of Economics.
    13. Richard Podpiera & Martin Cihak, 2005. "Bank Behavior in Developing Countries; Evidence from East Africa," IMF Working Papers 05/129, International Monetary Fund.
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    Cited by:

    1. Asongu, Simplice, 2015. "Growth and Institutions in African Development by Augustin K. Fosu," MPRA Paper 68656, University Library of Munich, Germany.
    2. Simplice Asongu & Jacinta Nwachukwu & Vanessa Tchamyou, 2017. "A Literature Survey On Proposed African Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 878-902, July.
    3. Simplice Asongu & Jacinta C. Nwachukwu & Vanessa S. Tchamyou, 2017. "A summary of a survey on proposed African monetary unions," Working Papers 17/008, African Governance and Development Institute..

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