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Is East Africa an Optimum Currency Area?

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  • Mkenda, Beatrice Kalinda

    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

The paper investigates whether the East African Community, comprising of Kenya, Tanzania, and Uganda, constitutes an optimum currency area or not. The East African Community has been revived, and one of the long-term objectives of the Community is to have a common currency. The paper employs the Generalised Purchasing Power Parity method, and various criteria suggested by the theory of Optimum Currency Areas to investigate the optimality of the Community as a currency area. While the various indices that we calculated based on the theory of Optimum Currency Areas gave mixed verdicts, the Generalised Purchasing Power Parity (G-PPP) method supports the formation of a currency union in the region.Using the G-PPP method, we were able to establish cointegration between the real exchange rates in East Africa for the period 1981 to 1998, and even for the period 1990 to 1998. This finding suggests that the three countries tend to be affected by similar shocks.

Suggested Citation

  • Mkenda, Beatrice Kalinda, 2001. "Is East Africa an Optimum Currency Area?," Working Papers in Economics 41, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0041
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    File URL: http://hdl.handle.net/2077/2675
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    References listed on IDEAS

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    11. Carolyn Jenkins & Lynne Thomas, 1997. "Is Southern Africa ready for regional monetary integration?," CSAE Working Paper Series 1997-03, Centre for the Study of African Economies, University of Oxford.
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    Citations

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    Cited by:

    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. Moshi Optat Herman & Kirsten Wandschneider & Thierry Warin & Phanindra Wunnava, 2011. "Southern African Economic Integration: Evidence from an Augmented Gravity Model," The African Finance Journal, Africagrowth Institute, vol. 13(1), pages 1-13.
    3. International Monetary Fund, 2009. "Kenya; Selected Issues and Statistical Appendix," IMF Staff Country Reports 09/192, International Monetary Fund.
    4. Laetitia Lepetit & Clovis Rugemintwari & Frank Strobel, 2015. "Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?," The World Economy, Wiley Blackwell, vol. 38(8), pages 1179-1204, August.
    5. William Miles, 2015. "The East African Monetary Union: Is the Level of Business Cycle Synchronization Sufficient?," Applied Economics and Finance, Redfame publishing, vol. 2(4), pages 115-125, November.
    6. Mulatu F. Zehirun & Marthinus C. Breitenbach & Francis M. Kemegue, 2015. "Assessment of Monetary Union in SADC: Evidence from Cointegration and Panel Unit Root Tests," Working Papers 201502, University of Pretoria, Department of Economics.
    7. Peter Wilson & Keen Meng Choy, 2007. "Prospects for enhanced exchange rate cooperation in East Asia: some preliminary findings from generalized PPP theory," Applied Economics, Taylor & Francis Journals, vol. 39(8), pages 981-995.
    8. Meredith A McIntyre, 2005. "Trade Integration in the East African Community; An Assessment for Kenya," IMF Working Papers 05/143, International Monetary Fund.
    9. Luis Alberiko Gil-Alaña & Borja Balprad & Guglielmo Maria Caporale & Hector Carcel, 2015. "Exchange Rate Dynamics and Monetary Unions in Africa: A Fractional Integration and Cointegration Analysis," NCID Working Papers 11/2015, Navarra Center for International Development, University of Navarra.
    10. repec:dug:journl:y:2017:i:2:p:135-144 is not listed on IDEAS
    11. Steven K. Buigut & Neven T. Valev, 2006. "Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis," Review of Development Economics, Wiley Blackwell, vol. 10(4), pages 586-603, November.

    More about this item

    Keywords

    Optimum Currency Area; Cointegration; Purchasing Power Parity; East Africa; Kenya; Tanzania; Uganda.;

    JEL classification:

    • 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
    • F15 - International Economics - - Trade - - - Economic Integration
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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