A Fast-Track East African Community Monetary Union? Convergence Evidence from a Cointegration Analysis. | Buigut | International Journal of Economics and Finance | CCSE

A Fast-Track East African Community Monetary Union? Convergence Evidence from a Cointegration Analysis.

Steven Buigut

Abstract

There is a proposal for a fast-tracked approach to the African Community (EAC) monetary union. This paper uses cointegration techniques to determine whether the member countries would form a successful monetary union based on the long-run behavior of nominal and real exchange rates and monetary base. The three variables are each analyzed for co-movements among the five countries. The empirical results indicate only partial convergence for the variables considered, suggesting there could be substantial costs for the member countries from a fast-tracked process. This implies the EAC countries need significant adjustments to align their monetary policies and to allow a period of monetary policy coordination to foster convergence that will improve the chances of a sustainable currency union.

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DOI:10.5539/ijef.v3n1p255

This work is licensed under a Creative Commons Attribution 4.0 License.

ISSN(Print): 1916-971X
ISSN(Online): 1916-9728
Started: 2009
Frequency: monthly

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