An economic analysis of sustainability of a potential GCC economic and monetary union during 2005-2014

2016 ◽  
Vol 12 (3) ◽  
pp. 194-206 ◽  
Author(s):  
Subhadra Ganguli
Keyword(s):  
Monetary Union ◽  
Oil Prices ◽  
Sustainable Growth ◽  
Oil Price ◽  
Economic And Monetary Union ◽  
Convergence Criteria ◽  
Single Currency ◽  
Policy Makers ◽  
Content Type ◽  
Accession Countries

Purpose – Gulf Cooperation Council (GCC) was set up in 1981 between Bahrain, Oman, Qatar, Saudi Arabia, United Arab Emirates and Kuwait for strengthening cooperation and economic development in the region. The GCC has made strides towards economic consolidation by forming a customs union and a common market. The long-term vision is to create an Economic and Monetary Union (EMU) with a single currency. Progress towards the EMU has been slow and the recent oil price plunge has led to concerns regarding sustainable growth of member countries due to their significant dependence on oil and lack of diversification. The purpose of this paper is to analyse the scope of an EMU in the GCC against the backdrop of current oil crisis and examine sustainability of such a union. The paper studies convergence criteria similar to the ones followed by the accession countries of the European EMU in the 1990s preceding the introduction of the single currency Euro. Design/methodology/approach – The paper draws its practical approach from the experience of the European Monetary Union, though the original idea of the single currency in Optimum Currency Areas was conceived by Mundell (1961). The present paper analyses macroeconomic time-series variables (e.g. GDP, budget deficits, debt, growth rates, inflation rates, exchange rates) for GCC during the period 2005-2014. Data has been sourced from United Nations Conference on Trade and Development (UNCTAD), The World Bank and International Monetary Fund (IMF) databases to study the convergence criteria adopted by the EMU countries for the introduction of the Euro. Findings – The paper concludes that GCC economies are similar in terms of their structural and economic fundamentals. Most elements of the convergence criteria that were followed by the accession countries in Europe are fulfilled by the GCC member states, particularly during 2011-2014. The GCC states look similar in terms of sustainable growth, price stability and exchange rate stability – three aspects of convergence met by the European Union states. However, heavy dependence on oil and lack of diversification from oil and hydrocarbon-related products in the gross domestic product (GDP) composition of GCC states pose severe risks to the potential union. Fiscal vulnerabilities of these economies to oil price shocks, such as the current oil price crisis, create concerns for such a union during oil price lows. Widely divergent fiscal deficit-to-GDP ratios and rising debt-to-GDP ratios during periods of low oil prices imply the lack of sound and unsustainable public finances for some of the GCC states. The divergence has stemmed from widely different break-even oil prices for government budgets within the GCC and also due to varying degrees of oil dependencies between the member states. The scope of a successful and more sustainable EMU can be further explored once the GCC economics have achieved adequate diversity from oil. Originality/value – The study is useful to policy makers, central banks, businesses and researchers since it highlights the EMU as a feasible option for the GCC states. The sustainability of the EMU is contingent on diversification of these economies in the future from oil and oil-related products. The study can be utilized by policy makers as a strategy to further restructure GCC economies towards greater resilience and integration prior to accession to the GCC EMU.

The nexus of trade-weighted dollar rates and the oil prices: an asymmetric approach

2020 ◽  
Vol 47 (7) ◽  
pp. 1579-1589 ◽  
Author(s):  
Abdulnasser Hatemi-J ◽  
Youssef El-Khatib
Keyword(s):  
Impulse Response ◽  
Oil Prices ◽  
World Market ◽  
Oil Price ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Policy Makers ◽  
Content Type ◽  
Dynamic Relationship ◽  
Reverse Relationship

PurposeThis paper investigates the dynamic relationship between the trade-weighted dollar exchange rates and the oil prices in the world market. Monthly data during 1980–2017 are used for this purpose.Design/methodology/approachThe symmetric and asymmetric generalized impulse response functions are estimated for these important economic indicators.FindingsThe empirical findings show that if the dollar rate increases (i.e. the dollar depreciates), the oil price will increase. The reverse relationship is also supported empirically meaning that an increase in the oil price will results in a significant depreciation of the dollar rate. Based on the asymmetric impulses responses, it can also be claimed that the negative interaction is only significant for the positive changes and not for the negative ones. Thus, the underlying variables are negatively interrelated only for the positive shocks since a negative shock from any variable does not seem to have any significant impact on the other variable. These results have implications for cross hedging of price risk.Originality/valueTo the best knowledge, this is the first attempt to investigate the relationship between the dollar weighted exchange rate and the oil pieces via the asymmetric impulse response functions. Both of these variables and their interactions are very important for investors as well as policy makers worldwide.

Exploring the inflationary effect of oil price in the US

2019 ◽  
Vol 13 (1) ◽  
pp. 60-76 ◽  
Author(s):  
Amine Lahiani
Keyword(s):  
Growth Rate ◽  
Structural Breaks ◽  
Oil Prices ◽  
Oil Price ◽  
Inflation Expectations ◽  
Oil Price Shocks ◽  
Price Shocks ◽  
Content Type ◽  
The Us ◽  
The Relationship

PurposeThe purpose of this paper is to explore the effect of oil price shocks on the US Consumer Price Index over the monthly period from 1876:01 to 2014:04.Design/methodology/approachThe author uses the Bai and Perron (2003) structural break test to split the data sample into sub-periods delimited by the computed break dates. Afterwards, the author uses the quantile treatment effects over the full sample and then, by including sub-periods dummies to accommodate the selected structural breaks that drive the relationship between inflation and oil price growth.FindingsThe findings include a decreased transmission effect of oil price changes on inflation in recent years; a varied elasticity of inflation to the growth rate of oil prices across the distribution; and, finally, evidence of asymmetry in the relationship between the growth rate of oil prices and inflation, with a higher transmission mechanism for decreasing rather than increasing oil prices.Practical implicationsPolicymakers should remain alert to monitoring potential inflation increases and should take precautionary measures to anchor inflation expectations, because inflation reacts differently to positive and negative oil price shocks. Moreover, authorities should consider the asymmetric reaction of inflation to oil price shocks to adopt an appropriate monetary policy strategy to achieve the price stability target.Originality/valueThe paper used a quantile regression model with structural breaks, which has not yet been used in the literature.

The macroeconomic effects of increase and decrease in oil prices: evidences of asymmetric effects from India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anver Chittangadan Sadath ◽  
Rajesh Herolli Acharya
Keyword(s):  
Negative Impact ◽  
Wholesale Price ◽  
Oil Prices ◽  
Petroleum Products ◽  
Oil Price ◽  
Content Type ◽  
Macroeconomic Variables ◽  
Real Gdp ◽  
Oil Price Shock ◽  
Price Shock

Purpose The purpose of this paper is to assess whether oil price shocks emanating from oil price increase and decrease have a different impact on the macroeconomic activity. Design/methodology/approach This study conducts the empirical analysis using structural vector auto-regressive model on Indian data for the period from 1996 to 2017. This paper uses four key macroeconomic variables, namely, real gross domestic product (GDP), the real rate of interest, real money supply, wholesale price index inflation and various linear and non-linear measures of oil price shock. Findings Empirical results confirm that oil price shock has a significant impact on various macroeconomic variables used in the study. Specifically, shocks emanating from a decline in oil price have a stronger positive impact on real GDP, whereas, a shock due to the rise in oil price has a weaker negative impact on real GDP. Impulse responses confirm that shocks due to a decline in oil prices are long-lasting compared to similar shocks due to a rise in oil prices. Therefore, this study concludes that the macroeconomic impact of oil price shock is asymmetric in India. Originality/value This paper adds the following new insights: First, this paper presents a distinct relationship between the growth rate of oil price and GDP during increasing and decreasing phases of oil price to drive home the case for this study. Second, India has adopted crucial administrative initiatives such as deregulation of the market for petroleum products and the promotion of renewable energy during the study period. Finally, previous studies have revealed specific behavioral and economic features of people in India with respect to the demand for petroleum products. In light of these factors, this paper based on Indian experience would be justified.

21. Economic and Monetary Union

2014 ◽  
pp. 385-404
Author(s):  
Ian Bache ◽  
Simon Bulmer ◽  
Stephen George ◽  
Owen Parker
Keyword(s):  
Economic Growth ◽  
European Community ◽  
Monetary Union ◽  
West Germany ◽  
Historical Background ◽  
Economic And Monetary Union ◽  
Single Currency ◽  
Summit Meeting ◽  
The Hague ◽  
Heads Of Government

This chapter examines the various attempts to create the Economic and Monetary Union (EMU), which first became an official objective of the European Community (EC) in 1969 but was achieved only thirty years later. In December 1969, the Hague Summit meeting of the EC heads of government made a commitment to the achievement of EMU ‘by 1980’. However, France and West Germany disagreed over how to do it. Germany made anti-inflationary policies the priority, while France made economic growth the priority, even at the risk of higher inflation. The chapter first provides a historical background on efforts to create the EMU before discussing the launch of the single currency, the euro, and its subsequent progress up to and including the eurozone crisis in the late 2000s. It also considers some of the explanations for and critiques of EMU that have been offered by various academic commentators.

Is the GCC an optimum currency area (OCA)? Empirical answers from co-movements

2020 ◽  
Vol 13 (5) ◽  
pp. 873-890
Author(s):  
Tamsir Cham
Keyword(s):  
Financial Crisis ◽  
Monetary Union ◽  
Current Account ◽  
Oil Prices ◽  
Current Account Balance ◽  
Annual Data ◽  
Optimum Currency Area ◽  
Content Type ◽  
Currency Area ◽  
Optimum Currency

Purpose This paper aims to investigate whether the Gulf Cooperation Council (GCC) is an optimum currency area in the wake of the global financial crisis and low oil prices using annual data from 2000 to 2016. Design/methodology/approach It applies the European Monetary Union as a reference point and co-movement methodology on key variables such as gross domestic product, inflation, terms of trade and current account balance. The findings revealed that all countries meet the macroeconomic convergence criteria and there is greater co-movement of these variables in the GCC. Findings Furthermore, the degree of co-movements increases during the financial crisis and recent low oil prices, which signifies the synchronization of shocks. However, labor is less mobile in the region and current account balance co-movement is relatively weak, but with the endogeneity of a monetary union, these constraints will evaporate as the zone enters monetary unification. The paper recommends that for the GCC monetary union to happen and be sustainable, there needs to be political will. The paper also recommended for the zone to have a common identification card so that nationals can move and work freely within the GCC region. Originality/value The study defers from the others in the following: this paper considered shock synchronization and co-movement methodology, which has not been applied in the region to assess its feasibility as an OCA.

History of an Incomplete EMU

2020 ◽  
Author(s):  
Emmanuel Mourlon-Druol
Keyword(s):  
Monetary Union ◽  
Banking Regulation ◽  
Maastricht Treaty ◽  
Policy Coordination ◽  
Economic And Monetary Union ◽  
Monetary Unions ◽  
Single Currency ◽  
Financial Transfers ◽  
History Of ◽  
Banking Regulation And Supervision

The Economic and Monetary Union (EMU) created in 1992 by the Maastricht Treaty was famously incomplete. The decision to create a European single currency was taken without agreeing at the same time on the introduction of traditional accompanying features of some other monetary unions, namely: substantial financial transfers from richer to less developed regions, a credible framework for macroeconomic policy coordination, and European-wide provisions for banking regulation and supervision, to name but a few. The 1992 Maastricht Treaty set out an unfinished, or ‘lopsided union’, with the predominance of monetary union over economic union. The titles of the multiple reports published since 1992, such as the Van Rompuy report of 2012, ‘Towards a Genuine Economic and Monetary Union’, the Five Presidents’ Report of 2015, ‘Completing Europe’s Economic and Monetary Union’, and the Commission’s ‘Reflection Paper on the Deepening of the Economic and Monetary Union’ of 2017 highlight this lopsidedness very well.

The optimal thermal causal path analysis on the relationship between international crude oil price and stock market

Kybernetes ◽  
2018 ◽  
Vol 47 (6) ◽  
pp. 1242-1261 ◽  
Author(s):  
Can Zhong Yao ◽  
Peng Cheng Kuang ◽  
Ji Nan Lin
Keyword(s):  
Stock Market ◽  
Crude Oil ◽  
Stock Markets ◽  
Oil Prices ◽  
Oil Price ◽  
Chinese Stock Market ◽  
Crude Oil Price ◽  
Content Type ◽  
Crude Oil Prices ◽  
Causal Path

Purpose The purpose of this study is to reveal the lead–lag structure between international crude oil price and stock markets. Design/methodology/approach The methods used for this study are as follows: empirical mode decomposition; shift-window-based Pearson coefficient and thermal causal path method. Findings The fluctuation characteristic of Chinese stock market before 2010 is very similar to international crude oil prices. After 2010, their fluctuation patterns are significantly different from each other. The two stock markets significantly led international crude oil prices, revealing varying lead–lag orders among stock markets. During 2000 and 2004, the stock markets significantly led international crude oil prices but they are less distinct from the lead–lag orders. After 2004, the effects changed so that the leading effect of Shanghai composite index remains no longer significant, and after 2012, S&P index just significantly lagged behind the international crude oil prices. Originality/value China and the US stock markets develop different pattens to handle the crude oil prices fluctuation after finance crisis in 1998.

Sense and Nonsense About the Single European Currency

1998 ◽  
Vol 33 (S1) ◽  
pp. 23-37
Author(s):  
Tim Congdon
Keyword(s):  
European Integration ◽  
European Commission ◽  
Monetary Union ◽  
Driving Force ◽  
Economic Benefits ◽  
Economic And Monetary Union ◽  
The Political ◽  
Single Currency ◽  
Financial Arrangements ◽  
Complete Transformation

The project to introduce a single currency is the most daring step so far in European integration. Indeed, it can be correctly described as revolutionary. It is much more far-reaching than previous moves in this direction over the last 15 years, such as the harmonisation of regulations or the ending of exchange controls; it is intended not as an incremental advance, but as a complete transformation of Europe's financial arrangements.The audacity of the single currency project is the more striking, in that it is a “revolution from above” rather than a “revolution from below”. The driving force has not been popular dissatisfaction with the existing currency arrangements, but the integrationist ambition of certain members of the European élite, particularly the German Chancellor, the French President and the President of the European Commission. (The integrationist ambition appears to attach to the positions ex officio and to be quite unaffected by the particular individuals who currently fill them.) These members of the élite emphasize the political nature of the single currency project, not the economic benefits. For example, Chancellor Kohl has said that European economic and monetary union (EMU) should prevent future wars in Europe.

Oil prices and bank credit risk in MENA countries after the 2008 financial crisis

2020 ◽  
Vol 13 (2) ◽  
pp. 219-247
Author(s):  
Rui Wang ◽  
Hang (Robin) Luo
Keyword(s):  
Credit Risk ◽  
Deposit Insurance ◽  
Oil Prices ◽  
Oil Price ◽  
Bank Loan ◽  
Bank Credit ◽  
Bank Risk ◽  
Content Type ◽  
Mena Countries ◽  
Macroprudential Policies

Purpose The purpose of this paper is to investigate the oil price–bank risk nexus by considering the heterogeneity of bank characters. Design/methodology/approach This paper empirically tests the effect of oil price movements on bank credit risk by using a sample of 279 banks in the Middle East and North Africa countries from 2011 to 2017. Findings Authors find robust evidence that the credit risk of bank loan portfolios is negatively associated with increased oil prices. The heterogeneity analysis indicates that the effect of asset quality improvement brought about by rising oil prices is more salient in conventional banks, and banks with small size, low liquidity and whose funding source relies on customers’ deposits. Practical implications The results favor the diversification of bank funding sources, the improvement of a country’s financial development, the adoption of explicit deposit insurance and macroprudential policies, such as countercyclical liquidity buffers, to weaken the adverse impact of oil prices declines. Originality/value The present paper enriches the literature of oil price–bank risk nexus by analyzing the heterogeneity of bank characters and advances our knowledge on the determined factors of bank riskiness and vulnerability.

Effective European monetary union in the light of the optimum currency area; model countries: Germany and Poland

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ergin Akalpler
Keyword(s):  
Monetary Union ◽  
Unit Root ◽  
Quantitative Research ◽  
Panel Cointegration ◽  
Monetary Integration ◽  
Optimum Currency Area ◽  
Single Currency ◽  
Content Type ◽  
Currency Area ◽  
Optimum Currency

PurposeThis study aims to research the effects of unemployment wages current account and consumer price index (CPI) on the real gross domestic product (RGDP), which, in the optimum currency area (OCA) theory, supposes that countries with higher factor mobility can significantly profit from the currency area. However, in this study, it is shown that the considered optimum currency crisis (OCC) model is affected by mobility factors, as the defined theory has not been perfectly realised in the Eurozone.Design/methodology/approachIn this study, Breusch–Pagan–Godfrey and Lagrange multiplier (LM) tests are used for supporting the survey for better estimation of the panel cointegration tests, where Pedroni's (1995, 1997) technique is used. The unit root tests are employed, of which the Phillip–Perron and augmented Dickey–Fuller tests (unit root test, Dickey, D. and W. Fuller, 1979) are considered.FindingsIt can be concluded that demand shocks will tend to be more asymmetric instead of being symmetric, even though they are in the customs union (CU). However, Polish workers in a given scenario may move to Germany, but because of the rigidity of the labour market and qualification differences between workers, the interregional integration of member countries is reduced, and this reduces the absorption of asymmetric shocks. In Germany, where strong employment protection and rigidity are observed in comparison to Poland, although there has been historical migration and economical collaboration, unfortunately, the integration of the two countries’ economies has not been realised.Research limitations/implicationsQuantitative research on fiscal union and the estimation of its effects is not possible because there is no practical experience of fiscal union throughout the European Union (EU). However, quantitative research is used for estimating the effects of OCA in the Eurozone. Quantitative investigation is particularly focused on the monetary union and single currency and its impact on growth rate. In this study, the ordinary least squares (OLS) method and panel cointegration test are employed for estimating the effects of the considered variables.Practical implicationsThe Eurozone and the application of a single currency throughout the EU was a considerably difficult task. In addition, the adoption of a single currency was not easy for those member countries that fulfilled the “convergence criteria” (or “Maastricht criteria”) and who joined the Eurozone, because only adoption is not enough; maintenance of those criteria is also required. This study analysed the application of the Eurozone in the light of the OCA of Mundel's theory.Social implicationsThe OCA is important for member countries’ economic relations. However, the application of a single currency is not easy and needs to be controlled and regulated to ensure best practises throughout the Eurozone. Monetary integration is not a simple process, and Eurozone countries’ financial difficulties affect each other’s markets’ indifferent aspects. Particularly in any market recession, demand shocks tend to have different effects. Furthermore, in comparison to the monetary union, the CU has a considerable impact on trade enlargement.Originality/valueIn this study, the effects of the independent variables “wages, unemployment, CPI and capital flow” on the dependent variable “RGDP” is considered, which, in the OCA theory, supposes that countries with higher factor mobility can significantly profit from the currency area. In application, it was turned into crisis because of inadequate monetary and fiscal application. In this paper OCA is questioned in the light of the Eurozone for bringing better understanding to these difficulties. The considered model and estimations are used for evaluating to create sustainable monetary integration for economic growth.

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