Bulletin n. 2-3/2012 | ||
October 2012-February 2013 | ||
Won Joong Kim, Shawkat Hammoudeh, Eisa A. Aleisa |
||
Synchronization of Economic Shocks between Gulf Cooperation Cooperation Council and United States, Europe, Japan and Oil Market: choice of exchanmge rate regime | ||
in Contemporary Economic Policy , volume 30 n.4 , 2012 , 584-602 | ||
Using a structural vector autoregression (SVAR) with block exogeneity, this study examines the impacts of external shocks originating from the United States, the European Union, Japan, and the oil market as well as those of the regional shocks, on the oil-rich countries of the Gulf Cooperation Council (GCC), viewed as a prospective monetary union. It takes into account the implications of the shock impacts for selecting an appropriate common exchange rate arrangement. The SVAR variance decomposition and impulse response analyses strongly underscore the relative impacts of the global shocks over the regional ones. The findings imply that the world's two major currencies, the U.S. dollar and the euro, should figure highly in a GCC's common basket of currencies. Accordingly, a transitional movement to a more flexible exchange rate arrangement such as a basket peg may be desirable for these trade-dependent economies in the long run, as is argued in the optimal currency literature for developing countries. | ||