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

Abu-Qarn, Aamer and Abu-Bader, Suleiman (2006): On the optimality of a GCC Monetary Union: Structural VAR, Common Trends and Common Cycles Evidence.

Abstract

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.

• Item Type: MPRA Paper
• Institution: monaster center for economic research
• Language: English
• Keywords: Gulf Cooperation Council; GCC; optimal monetary union; cointegration; common cycles; structural VAR
• Subjects: F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration

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