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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: Economic policy; Financial integration; Central bank policy; Cooperation Council for the Arab States of the Gulf; Monetary policy; Monetary unions; Foreign exchange; Models with panel data, central banks and their policies, analysis of fiscal and monetary policy, economic integration, policy coordination and transmission, exchange rate, real exchange rate, correlation, exchange rates, cointegration, (search for similar items in EconPapers)
Pages: 33
Date: 2007-10-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Handle: RePEc:imf:imfwpa:07/249