GCC Monetary Union and the Degree of Macroeconomic Policy Coordination
Author | : Bassem Kamar |
Publisher | : International Monetary Fund |
Total Pages | : 40 |
Release | : 2007-10 |
ISBN-10 | : UCSD:31822036080737 |
ISBN-13 | : |
Rating | : 4/5 (37 Downloads) |
Book excerpt: Coordinating macroeconomic policies is a pre-requisite to a successful launch of the common currency in the GCC countries. Relying on the Behavioral Equilibrium Exchange Rate approach as a theoretical framework, we apply the Pooled Mean Group methodology to determine the similarity of the impact of a selected set of macroeconomic indicators on the real exchange rate in each country. Our empirical evidence points to a clear coordination of monetary policy, fiscal policy, government consumption, and openness across the member countries. While RER misalignments also show a substantial convergence building over time, differences in the misalignments of the two polar cases remain rather substantial, calling for further coordination and policy harmonization.