GCC Monetary Union and the Degree of Macroeconomic Policy Coordination

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.
Publication date: October 2007
ISBN: 9781451868128
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Money and Monetary Policy , 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

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