Exchange Rate Policies and Monetary Union Effectiveness in the East Africa Community

57 Pages Posted: 22 Mar 2016

See all articles by Thierry Urgue Kame Babilla

Thierry Urgue Kame Babilla

Center for Economic Policy; Euro Area Business Cycle Network (EABCN); Global Labor Organization

Date Written: March 17, 2016

Abstract

This paper assesses the effectiveness of East Africa Monetary Union under alternative exchange rate policies. We model four types of exchange rate policies in a two-open economy Dynamic Stochastic General Equilibrium model with financial micro-foundations. Findings reveal that floating exchange rate policy is preeminent for East Africa monetary union effectiveness. Partner states case study demonstrates that, first, wealth effect expansionary features are not driven under pegged exchange rate policy. Second, monetary policy transmission mechanism is ambiguous under target zone exchange rate policy. Third, Fisher effect dampening impact arises under managed floating exchange rate policy and lasts over time.

Keywords: Exchange Rate Policies, Monetary Union Effectiveness, DSGE model, EAC

JEL Classification: C61, E44, E52, F33

Suggested Citation

Kame Babilla, Thierry Urgue, Exchange Rate Policies and Monetary Union Effectiveness in the East Africa Community (March 17, 2016). Available at SSRN: https://ssrn.com/abstract=2749374 or http://dx.doi.org/10.2139/ssrn.2749374

Thierry Urgue Kame Babilla (Contact Author)

Center for Economic Policy ( email )

London, Center
United Kingdom

Euro Area Business Cycle Network (EABCN) ( email )

Great Sutton Street
London, 33
United Kingdom

Global Labor Organization ( email )

Collogne
Germany

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