Please use this identifier to cite or link to this item:
|Title:||On the choice of an anchor for the GCC currency: Does the symmetry of shocks extend to both the oil and the non-oil sectors?||Authors:||Jean Louis, R.
|Issue Date:||2012||Journal:||International Economics and Economic Policy||Abstract:||This paper assesses the costs of forming a monetary union among the Gulf Cooperation Council (GCC) countries by looking at economic linkages within the GCC, and between the GCC and the potential anchors (the US, and major European countries such as France, Germany and Italy) for their proposed new currency. We investigate the importance of the US dollar compared to the Euro by focusing on aggregate demand (AD) and aggregate supply (AS) shock symmetry across these countries. We differentiated between oil and non-oil sector by estimating structural vector autoregression (SVAR) models with a combination of variables: oil output, non-oil output, total output, nominal/real price of oil and overall price level. One set of models was identified with the long-run restrictions of Blanchard and Quah (Am Econ Rev 79(4):655-673, 1989), whereas the set that assesses the robustness of the findings was estimated with the short-run restrictions of Sims (Eur Econ Rev 36(5):975-1000, 1992). We find overwhelming support for AD shock symmetry across the GCC countries and between the GCC and the US, but none for the major European countries with the GCC. Non-oil AS shocks are mostly asymmetric, but oil AS shocks are mostly symmetric when the real price of oil is included. This agrees with the view that GCC countries are subjected to common oil shocks. It also suggests that previous VAR models estimated to pass judgment on the feasibility of monetary union across GCC countries may have suffered from problems of mis-specification if the real price of oil was not considered. We surmise that the US dollar is a better anchor candidate for anchoring the new GCC currency than the Euro, since US monetary policy can at least help smooth demand shocks in these countries. © 2011 Springer-Verlag.||URI:||http://hdl.handle.net/20.500.12216/106||DOI:||10.1007/s10368-011-0182-3|
|Appears in Collections:||Articles|
Show full item record
checked on Feb 12, 2019
checked on Feb 19, 2019
Items in Corepaedia are protected by copyright, with all rights reserved, unless otherwise indicated.