IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/11611.html
   My bibliography  Save this paper

Monetary Union Among Arab Gulf Cooperation Council (AGCC) Countries: Does the symmetry of shocks extend to the non-oil sector?

Author

Listed:
  • Louis, Rosmy
  • Balli, Faruk
  • Osman, Mohammad

Abstract

AGCC countries' output is heavily dichotomized into oil and non-oil. The oil shocks have similar effects on all member countries but little is known about their responses to non-oil shocks. This paper sets out to determine whether (1) aggregate demand (AD) and non-oil supply shocks (AS) are symmetrical across these countries to justify their suitability for monetary union; and (2) whether there is any commonality of shocks with the United States and the three major European countries, namely France, Germany, and Italy, which can warrant the choice of either the US dollar or the Euro as the anchor for the expected common currency of the bloc. We use bivariate structural vector autoregression models identified with long-run restrictions a la Blanchard and Quah (1989) to extract the shocks. Our results show that (a) AD shocks are unequivocally symmetrical but non-oil AS shocks are weakly symmetrical across AGCC countries thereby giving a green light for monetary union; (b) neither AD nor AS shocks are symmetrical between AGCC countries and the selected European countries; (c) AGCC's AD shocks are symmetrical with the US but non-oil AS shock are not. We therefore surmise that the US dollar is a far better candidate for the new currency than the Euro since US monetary policy can at least help smooth demand shocks in AGCC countries. Our results hold even when we consider the AGCC countries as a bloc. This paper makes a valuable contribution to AGCC decision makers who have been wrestling with the dilemma of whether to revalue or to depeg their actual currencies.

Suggested Citation

  • Louis, Rosmy & Balli, Faruk & Osman, Mohammad, 2008. "Monetary Union Among Arab Gulf Cooperation Council (AGCC) Countries: Does the symmetry of shocks extend to the non-oil sector?," MPRA Paper 11611, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11611
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/11611/1/MPRA_paper_11611.pdf
    File Function: original version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/38054/1/MPRA_paper_38054.pdf
    File Function: revised version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-673, September.
    2. Giordani, Paolo, 2004. "An alternative explanation of the price puzzle," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1271-1296, September.
    3. Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 202-211, June.
    4. Sturm, Michael & Siegfried, Nikolaus, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
    5. 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.
    6. Hebous, Shafik, 2006. "On the monetary union of the Gulf States," Kiel Advanced Studies Working Papers 431, Kiel Institute for the World Economy (IfW).
    7. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
    8. Belkacem Laabas and Imed Limam, "undated". "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center.
    9. Pattanaik, Sitikantha, 2007. "How Closely the GCC Approximates an Optimum Currency Area?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 22, pages 573-597.
    10. Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
    11. Ugo Fasano-Filho & Andrea Schaechter, 2003. "Monetary Union Among Member Countries of the Gulf Cooperation Council," IMF Occasional Papers 223, International Monetary Fund.
    12. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Magda Kandil & Mohamed Trabelsi, 2012. "Is The Announced Monetary Union In Gcc Countries Feasible? A Multivariate Structural Var Approach," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-18.
    2. Ben Abdesslem, Amel, 2013. "L’union monétaire des pays du Conseil de coopération du golfe : viabilité et perspectives d’avenir," L'Actualité Economique, Société Canadienne de Science Economique, vol. 89(3), pages 191-206, Septembre.
    3. repec:bla:worlde:v:40:y:2017:i:10:p:2153-2171 is not listed on IDEAS
    4. Bedri Kamil Onur Tas, 2010. "Determinants of Time-Varying Sensitivity of MENA Countries to Global Shocks: A State Space Approach," Working Papers 530, Economic Research Forum, revised 06 Jan 2010.
    5. Omotor, Douglason G. & Niringiye, Aggrey, 2011. "Optimum Currency Area and Shock Asymmetry: A Dynamic Analysis of the West African Monetary Zone (WAMZ)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 71-82, September.
    6. Abdulrazak Al Faris, 2010. "Currency Union in the GCC Countries: History, Prerequisites and Implications," Chapters,in: Currency Union and Exchange Rate Issues, chapter 2 Edward Elgar Publishing.

    More about this item

    Keywords

    AGCC; monetary union; shocks symmetry; currency anchor;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:11611. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.