Determinants of the Real Exchange Rate as a Prerequisite for the GCC Monetary Union


	Journal of Applied Sciences
	Year: 2014 \| Volume: 14 \| Issue: 24 \| Page No.: 3410-3423 DOI: 10.3923/jas.2014.3410.3423

Determinants of the Real Exchange Rate as a Prerequisite for the GCC Monetary Union

Hassan Al-Hajhoj, Abdulrazzak Charbaji and Mohammad Safarzadeh

Abstract: Monetary union plays an important role in introducing a single currency among the member states in a similar geographical region. It is therefore, necessary to analyze economic factors that lead to the establishment of monetary union in the Gulf Cooperation Council (GCC) through real exchange rate. The main aim of this study was to investigate the determinants of the Real Exchange Rate (RER) across the Gulf Cooperation Council (GCC) countries as a prerequisite for establishing a monetary union. To achieve this goal, different econometric techniques such as the Vector Error Correction (VEC) etc., were applied. Firstly, each relevant economic variable was tested according to the standard Augmented Dickey-Fuller (ADF) unit root test in order to be able to apply. Secondly, the Engle-Granger two-step co-integration method was applied to determine the appropriateness of using the VEC for each GCC country. The results indicated that the most economic variables in the study have one order of integration. The study also showed that GCC countries have different economic variables that determine the RER. The study results indicated that the estimated error correction coefficients were not significant for all the GCC countries except the state of Qatar where the growth in RER will deviate by -0.240808 in the short term. The study highlighted the various determinants of RER helpful to establish monetary union in the GCC countries.

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How to cite this article:

Hassan Al-Hajhoj, Abdulrazzak Charbaji and Mohammad Safarzadeh, 2014. Determinants of the Real Exchange Rate as a Prerequisite for the GCC Monetary Union. Journal of Applied Sciences, 14: 3410-3423.

DOI: 10.3923/jas.2014.3410.3423

URL: https://scialert.net/abstract/?doi=jas.2014.3410.3423

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