COINTEGRATION OF MONETARY POLICY IN GCC COUNTRIES AS MEASURE OF ECONOMIC INTEGRATION
Economic integration in the world is not always an explicit and intentional process. For some regions we are able to observe unintentional coordination of economic policies that results from following similar institutional and legal solutions. One of such cases can be recognized in the nominal sector of the national economy. As a consequence, a group of countries may be forming a de-facto currency union. It could alternatively compose an OCA without any need for forced nominal convergence. This paper focuses on monetary policy stance and its developments in the period from 1981 to 2013 of a very special group of resource-based economies. The GCC countries share many similarities in the underlying exchange rate regime solutions. They are in the same time following some explicit economic integration initiatives. It happens, however, that due to the financial turmoil after 2008, many of the integration processes have been reversed, or stopped. An empirical research tries to answer a question of the extent to which the integration process in nominal sector has been developing. For this purpose the monetary policy stance correlation is measured. Observing its developments, with a cointegration analysis in a standard (non-structural) VAR model, delivers interesting insights into an issue of the GCC as an OCA. With statistical data provided by the World Bank (WDI Database) it is possible to observe significant convergence in monetary policy stance among all but one of the GCC countries. This study draws attention to a broader picture of a region that has potential of benefiting from a common market. However, not all GCC countries seem to be suited for economic integration in nominal sector. It is Bahrain that shows significant divergence for the whole period covered. There may be many country-specific factors, but persistence of asymmetry in monetary policy in this particular case allows for skeptical thoughts. If the GCC initiatives are continued, the economic integration will be more challenging in the new situation. As the observed convergence in monetary policy stance has been present from late 1970s one could suggest that it could have been a non-intentional process, but a result of similar exchange rate regimes. However, the latter divergence has been a result of conscious changes in the economic policies that affect the nominal sector.
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