Is the GCC an optimum currency area (OCA)? Empirical answers from co-movements

Purpose This paper aims to investigate whether the Gulf Cooperation Council (GCC) is an optimum currency area in the wake of the global financial crisis and low oil prices using annual data from 2000 to 2016. Design/methodology/approach It applies the European Monetary Union as a reference point and co-movement methodology on key variables such as gross domestic product, inflation, terms of trade and current account balance. The findings revealed that all countries meet the macroeconomic convergence criteria and there is greater co-movement of these variables in the GCC. Findings Furthermore, the degree of co-movements increases during the financial crisis and recent low oil prices, which signifies the synchronization of shocks. However, labor is less mobile in the region and current account balance co-movement is relatively weak, but with the endogeneity of a monetary union, these constraints will evaporate as the zone enters monetary unification. The paper recommends that for the GCC monetary union to happen and be sustainable, there needs to be political will. The paper also recommended for the zone to have a common identification card so that nationals can move and work freely within the GCC region. Originality/value The study defers from the others in the following: this paper considered shock synchronization and co-movement methodology, which has not been applied in the region to assess its feasibility as an OCA.

Effective European monetary union in the light of the optimum currency area; model countries: Germany and Poland

PurposeThis study aims to research the effects of unemployment wages current account and consumer price index (CPI) on the real gross domestic product (RGDP), which, in the optimum currency area (OCA) theory, supposes that countries with higher factor mobility can significantly profit from the currency area. However, in this study, it is shown that the considered optimum currency crisis (OCC) model is affected by mobility factors, as the defined theory has not been perfectly realised in the Eurozone.Design/methodology/approachIn this study, Breusch–Pagan–Godfrey and Lagrange multiplier (LM) tests are used for supporting the survey for better estimation of the panel cointegration tests, where Pedroni's (1995, 1997) technique is used. The unit root tests are employed, of which the Phillip–Perron and augmented Dickey–Fuller tests (unit root test, Dickey, D. and W. Fuller, 1979) are considered.FindingsIt can be concluded that demand shocks will tend to be more asymmetric instead of being symmetric, even though they are in the customs union (CU). However, Polish workers in a given scenario may move to Germany, but because of the rigidity of the labour market and qualification differences between workers, the interregional integration of member countries is reduced, and this reduces the absorption of asymmetric shocks. In Germany, where strong employment protection and rigidity are observed in comparison to Poland, although there has been historical migration and economical collaboration, unfortunately, the integration of the two countries’ economies has not been realised.Research limitations/implicationsQuantitative research on fiscal union and the estimation of its effects is not possible because there is no practical experience of fiscal union throughout the European Union (EU). However, quantitative research is used for estimating the effects of OCA in the Eurozone. Quantitative investigation is particularly focused on the monetary union and single currency and its impact on growth rate. In this study, the ordinary least squares (OLS) method and panel cointegration test are employed for estimating the effects of the considered variables.Practical implicationsThe Eurozone and the application of a single currency throughout the EU was a considerably difficult task. In addition, the adoption of a single currency was not easy for those member countries that fulfilled the “convergence criteria” (or “Maastricht criteria”) and who joined the Eurozone, because only adoption is not enough; maintenance of those criteria is also required. This study analysed the application of the Eurozone in the light of the OCA of Mundel's theory.Social implicationsThe OCA is important for member countries’ economic relations. However, the application of a single currency is not easy and needs to be controlled and regulated to ensure best practises throughout the Eurozone. Monetary integration is not a simple process, and Eurozone countries’ financial difficulties affect each other’s markets’ indifferent aspects. Particularly in any market recession, demand shocks tend to have different effects. Furthermore, in comparison to the monetary union, the CU has a considerable impact on trade enlargement.Originality/valueIn this study, the effects of the independent variables “wages, unemployment, CPI and capital flow” on the dependent variable “RGDP” is considered, which, in the OCA theory, supposes that countries with higher factor mobility can significantly profit from the currency area. In application, it was turned into crisis because of inadequate monetary and fiscal application. In this paper OCA is questioned in the light of the Eurozone for bringing better understanding to these difficulties. The considered model and estimations are used for evaluating to create sustainable monetary integration for economic growth.

Asymmetric Shocks Patterns in the Central African Economic and Monetary Community

Assessing the economic efficiency of countries’ participation to a currency union has become a relevant topic since the introduction of the Optimum Currency Area (OCA) theory by Mundell (1961). This paper attempts to evaluate the performance of the Central African Economic and Monetary Community (CAEMC) as a currency union in the context of exposure to asymmetric shocks. We first identify structural macroeconomic shocks within the region using the Blanchard and Quah Method. We find that aggregate demand shocks fluctuations display more symmetric patterns than those of aggregate supply shocks. Chad is the apparent outlier, as it is the only economy in the monetary union to experience negative supply shocks. This suggests that the loss of monetary sovereignty might result in significant adjustment costs.