GCC Monetary Union and the Degree of Macroeconomic Policy Coordination

Bassem Kamar and Sami Ben Naceur ()

No 07/249, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Working Paper; Cooperation Council for the Arab States of the Gulf; Monetary unions; Monetary policy; Financial integration; Foreign exchange; Economic policy; Central bank policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-10-29
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