Optimum currency areas in the sub Sahara region : examining eligibility of the east African community for a monetary union

Nyamrunda, Godfrey C.

Abstract

This study assesses the impact of fiscal policy and structural harmonisation (common market) of the East African Community (EAC) on the flow of goods and services, market responses, the flow of FDIs in the region and the volatility levels of the exchange rates across the region. The gravity model based on panel equations and other necessary time series procedures are widely used by this study due to their power to produce robust empirical findings. To estimate the gravity equation, we apply FE, RE, POLS and GMM so as to gather more information and empirical results for policy analysis. In addition, we apply all necessary suggested procedures for panel equations so as to compare and contrast which methods are producing more consistent and efficient parameters that can be used to define our findings. In chapter three, we introduce restrictions in the VAR system to estimate the structural responses of the block’s economies to external shocks. Under that process, the restrictions helps to isolate short run structural responses from long run responses. Under this procedure, all time series requirements are considered.

The fourth chapter measures the volatility levels of the exchange rates and their respective speed of adjustment by using the GARCH procedures. Through this process, the researcher is able to conclude by comparing the volatilities of the exchange rates throughout the region. In general we find that the EAC is an optimal currency area backed up by a significant and growing trade flow within the block. Also we find that unique country’s variables have some influences on the flow of capital and labour in the economies. In addition, the flow of FDI is growing in response to the adjusted trade policies throughout the region and hence favouring growth in the cross section. On external shocks, we find that EAC countries respond symmetrically to external shocks implying that it is safe to introduce a standard unit of measurement throughout the region.

Citation

Nyamrunda, G. C. (2013). Optimum currency areas in the sub Sahara region : examining eligibility of the east African community for a monetary union. (Thesis). University of Hull. Retrieved from https://hull-repository.worktribe.com/output/4214760

• Thesis Type: Thesis
• Deposit Date: Nov 6, 2013
• Publicly Available Date: Feb 23, 2023
• Keywords: Business
• Public URL: https://hull-repository.worktribe.com/output/4214760
• Additional Information: Business School, The University of Hull
• Award Date: Jun 1, 2013