GCC Monetary Union and the Degree of Macroeconomic Policy Coordination

35 Pages Posted: 25 Jan 2008

See all articles by Bassem Kamar

Bassem Kamar

International University of Monaco

Sami Ben Naceur

International Monetary Fund (IMF)

Date Written: October 2007

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: Working Paper, Cooperation Council for the Arab States of the Gulf, Monetary unions, Monetary policy, Financial integration, Foreign exchange, Economic policy, Central bank policy

Suggested Citation

Kamar, Bassem and Ben Naceur, Sami, GCC Monetary Union and the Degree of Macroeconomic Policy Coordination (October 2007). IMF Working Paper No. 07/249, Available at SSRN: https://ssrn.com/abstract=1087164

Bassem Kamar

International University of Monaco ( email )

2 Av Prince Hereditaire Albert
Stade Louis II/B
Monaco, Monaco MC-98000
United States

Sami Ben Naceur (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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