Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence

Guglielmo Maria Caporale and Luis Gil‐Alana
Authors registered in the RePEc Author Service: Luis Alberiko Gil-Alana

South African Journal of Economics, 2020, vol. 88, issue 2, 174-185

Abstract: This paper examines generalised purchasing power parity (G‐PPP) and business cycle synchronisation in the East Africa Community with the aim of assessing the prospects for a monetary union. The univariate fractional integration analysis shows that the individual series exhibit unit roots and are highly persistent. The fractional bivariate cointegration tests suggest that there exist bivariate fractional cointegrating relationships between the exchange rate of the Tanzanian shilling and those of the other EAC countries, and also between the exchange rates of the Rwandan franc, the Burundian franc and the Ugandan shilling. The Fractionally Cointegrated Vector AutoRegressive (FCVAR) results imply the existence of a single cointegrating relationship between the exchange rates of the EAC countries. On the whole, there is evidence in favour of G‐PPP. In addition, there appears to be a high degree of business cycle synchronisation between these economies. On both grounds, one can argue that a monetary union should be feasible.

Date: 2020
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Citations: View citations in EconPapers (2)

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https://doi.org/10.1111/saje.12247

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Working Paper: Prospects for a Monetary Union in the East Africa Community: Some Empirical Evidence (2018)
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