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Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?
Author(s) -
Lepetit Laetitia,
Rugemintwari Clovis,
Strobel Frank
Publication year - 2015
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12243
Subject(s) - economics , financial stability , monetary hegemony , fiscal union , fiscal policy , stability (learning theory) , macroeconomics , monetary policy , monetary economics , finance , international economics , financial system , machine learning , computer science
We examine prospects for a monetary union in the East African Community (EAC) by developing a stylised model of policymakers' decision problem that allows for uncertain benefits derived from monetary, financial and fiscal stability and then calibrating the model for the EAC for the period 2003–10. When policymakers properly allow for uncertainty, none of the countries wants to pursue a monetary union based on either monetary or financial stability grounds, and only Rwanda might favour it on fiscal stability grounds; we argue that robust institutional arrangements assuring substantial improvements in monetary, financial and fiscal stability are needed to compensate.