On the Optimality of a GCC Monetary Union: Structural VAR, Common Trends, and Common Cycles Evidence

Abstract

The suitability of the proposed monetary union among the members of the Gulf Cooperation Council (GCC) is examined. The authors identify the underlying structural shocks that these economies are subject to and assess the extent to which the shocks are symmetric. Alternatively, the authors test for common trends and common business cycles among the GCC economies. They find that while the transitory demand shocks are typically symmetric, the permanent supply shocks are asymmetric. Furthermore, they do not find synchronous long-run and short-run movements in output. Despite the progress that has been made in terms of integration, the findings indicate that the conditions for forming a GCC monetary union have not as yet been met.