Business Cycle Synchronization and Core-Periphery Patterns in the East African Community: A Wavelet Approach

Yvonne Umulisa () and Olivier Habimana
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Yvonne Umulisa: Jönköping University, University of Rwanda, Postal: Department of Economics, Finance and Statistics, Jönköping International Business School, Jönköping University, Gjuterigatan 5, P.O Box, 1026, 551 11 Jönköping, Sweden

Journal of Economic Integration, 2018, vol. 33, issue 4, 629-658

Abstract: Optimum currency area theory suggests that various characteristics are needed for a successful monetary union, including similarities in economic structures for both shocks and business cycles. Accordingly, this study uses continuous wavelets to investigate business cycle synchronization among countries of the East African Community, which is, a region working toward the establishment of a monetary union by 2024. Wavelet decomposition is an alternative and powerful tool for analyzing the comovement of business cycles. Crosswavelet coherency suggests that the business cycles of Tanzania and Uganda were in phase with that of Kenya’s at high and medium frequencies in the early 1990s and after the establishment of the customs union in 2005. Wavelet spectra clustering shows that Kenya, Tanzania, and Uganda form the core of the monetary union, whereas Burundi and Rwanda form the periphery. Overall, the wavelet analysis highlights the significance of asymmetric shocks and the prevalence of core-periphery patterns, which casts doubts on the eventual viability of the East African Monetary Union.

Keywords: Business cycle synchronization; East African monetary union; Optimum currency area; Wavelet analysis (search for similar items in EconPapers)
JEL-codes: E32 F15 F45 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0755

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