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On the optimality of a GCC Monetary Union: Structural VAR, Common Trends and Common Cycles Evidence

  • Abu-Qarn, Aamer
  • Abu-Bader, Suleiman

This paper examines the suitability of the proposed monetary union among the members of the Gulf Cooperation Council (GCC). To do so, we identify the underlying structural shocks that these economies are subject to and assess the extent to which the shocks are symmetric. Additionally, we test for common trends and common business cycles among the GCC economies. We find that while the transitory demand shocks are typically symmetric, the permanent supply shocks are asymmetric. Furthermore, we do not find synchronous long-run and short-run movements in output. Despite the progress that has been made in terms of integration, our findings indicate that the conditions for forming a GCC monetary union have not as yet been met.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 971.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:971
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  1. Belkacem Laabas and Imed Limam, . "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center.
  2. 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 655-73, September.
  3. 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.
  4. Arie Arnon & Avia Spivak, 1996. "Monetary integration between the Israeli, Jordanian and Palestinian economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 132(2), pages 259-277, September.
  5. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Monetary and exchange rate arrangements for NAFTA," Journal of Development Economics, Elsevier, vol. 43(1), pages 125-165, February.
  6. 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.
  7. Humayon A. Dar & John R. Presley, 2001. "The Gulf Co-operation Council: A Slow Path to Integration?," The World Economy, Wiley Blackwell, vol. 24(9), pages 1161-1178, 09.
  8. 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.
  9. Zaidi, Iqbal, 1990. "Monetary coordination among the gulf cooperation council countries," World Development, Elsevier, vol. 18(5), pages 759-768, May.
  10. Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  12. Ugo Fasano-Filho & Andrea Schaechter, 2003. "Monetary Union Among Member Countries of the Gulf Cooperation Council," IMF Occasional Papers 223, International Monetary Fund.
  13. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
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