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Is the East African Community an Optimum Currency Area?


  • Kishor, N. Kundan
  • Ssozi, John


This paper investigates whether the East African Community (EAC) constitutes an optimum currency area (OCA) by estimating the degree and evolution of business cycle synchronization between the EAC countries. We also investigate whether the degree of business cycle synchronization has improved after signing of the EAC treaty in 1999. The degree of business cycle synchronization is estimated using an unobserved components model of structural shocks obtained from a structural VAR model. We then use a time-varying parameter model to estimate the evolution of business cycle synchronization. Our results indicate that the proportion of shocks that is common across different countries is small, implying weak synchronization. However, we also find that the degree of synchronization has improved after signing of the EAC treaty in 1999.

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  • Kishor, N. Kundan & Ssozi, John, 2009. "Is the East African Community an Optimum Currency Area?," MPRA Paper 17645, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17645

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    References listed on IDEAS

    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. Lucio Castro, 2005. "Regional Trade Integration in East Africa: Trade and Revenue Impacts of the Planned East African Community Customs Union," International Trade 0509005, EconWPA.
    3. Angeloni, Ignazio & Dedola, Luca, 1999. "From the ERM to the euro: new evidence on economic and policy convergence among EU countries," Working Paper Series 0004, European Central Bank.
    4. Bayoumi, Tamim & Ostry, Jonathan D, 1997. "Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa: Implications for Optimum Currency Arrangements," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 412-444, October.
    5. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, vol. 40(1), pages 15-32, January.
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    Cited by:

    1. Luis Alberiko Gil-AlaƱa & 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.
    2. 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.
    3. Durevall, Dick, 2011. "East African Community: Pre-conditions for an Effective Monetary Union," Working Papers in Economics 520, University of Gothenburg, Department of Economics.
    4. Kuteesa, Annette, 2012. "East African Regional Integration: Challenges in meeting the convergence criteria for monetary union," Research Series 148956, Economic Policy Research Centre (EPRC).

    More about this item


    East African Community; Optimum Currency Area; Business Cycle Synchronization; Structural VAR; State-Space Model;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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