Monetary Integration in the Ex-Soviet Union: Some Preliminary Findings from Generalized PPP Theory

Abstract

In 2003, four Commonwealth of Independent States (CIS) countries established the Single Economic Space, and discussed the opportunity of forming a currency union. Recently, three of those countries took a step forward and adopted the Customs Union. The issue regarding monetary unification was discussed again at a Moscow conference. To examine the economic viability of this union, this paper applies the Generalized Purchasing Power Parity (G-PPP) theory and shows that due to the presence of asymmetric shocks and the possible surge of the Dutch disease in Ukraine and Belarus, the union might reveal to be expensive. However, when Ukraine is excluded, the three countries exhibit no asymmetric shocks.