The dissertation assesses the suitability of countries in the Eastern and Southern Africa region for a monetary union. Using VAR techniques the symmetry of the underlying structural shocks is analyzed. The results indicate that supply and demand shocks are generally asymmetric, which does not lend strong support for forming a region-wide currency union at the moment. Although economic shocks are not highly correlated across the entire region, we tentatively identify three sub-regional clusters of countries that may benefit from a currency union. We find some tentative evidence that some, though not all, sub-regions may benefit from a link to the Euro. However, the speed and magnitude of adjustment to shocks is similar across the countries. Therefore, further integration of the economies might lead to more favorable conditions for a monetary union. Using a Barro-Gordon type model, it is shown that forming a monetary union yields net benefits if output shocks are similar across member countries and if one or more countries in the union can serve as anchors. In addition it is shown that the opportunistic objectives of one country’s policymakers are kept in check at the union level by other members with disparate objectives. Hence monetary union can improve the monetary policy for its members if the pressures on the individual central banks are dissimilar. Calibrating the model to evaluate the proposed monetary union in the East African Community, it is found that central bank uncertainty would be a significant aspect in the net welfare effect of monetary union. An examination of the EAC countries also shows a fair degree of linkages. Intra-regional trade is substantial. The benefits from reduced transaction costs and exchange rate uncertainty would be substantial and growing. Though symmetry of shocks is still low, implementation of a protocol on factor mobility under discussion would help improve labor mobility. However though some progress has been made there is still need for more convergence before monetary union could be implemented.
| Identifer | oai:union.ndltd.org:GEORGIA/oai:digitalarchive.gsu.edu:econ_diss-1019 |
| Date | 05 January 2007 |
| Creators | Buigut, Steven K. |
| Publisher | Digital Archive @ GSU |
| Source Sets | Georgia State University |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | Economics Dissertations |
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