Co-movements Of Business Cycles In The Maghreb: Does Trade Matter?

Over the past two decades, the Maghreb Countries have initiated a liberalization process characterized by increasing trade flows and they have strengthened economic and financial linkages between their economies. In this paper, we demonstrate how co-movements of outputs would respond to this integration process. The nature of this relationship seems to be important for these countries because the decision to join an economic and monetary union would depend on how the union affects trade and co-movements. To this end, we estimate a panel model describing the effect of trade intensity on business cycles correlation over the period 1980-2005. Thereafter, to check the robustness of the results, we add many control variables commonly described in the literature. We use three estimation techniques: pooled OLS, fixed vs. random effects as well as 2SLS estimations. Our main results suggest that while trade intensity may help to harmonize business cycles in Maghreb countries, the magnitude of this harmonization is lower than for industrial countries. Moreover, intra-industry trade causes a reverse –counterintuitive- effect. Many lessons are thereby learned

Co-movements Of Business Cycles In The Maghreb: Does Trade Matter?

Over the past two decades, the Maghreb Countries have initiated a liberalization process characterized by increasing trade flows and they have strengthened economic and financial linkages between their economies. In this paper, we demonstrate how co-movements of outputs would respond to this integration process. The nature of this relationship seems to be important for these countries because the decision to join an economic and monetary union would depend on how the union affects trade and co-movements. To this end, we estimate a panel model describing the effect of trade intensity on business cycles correlation over the period 1980-2005. Thereafter, to check the robustness of the results, we add many control variables commonly described in the literature. We use three estimation techniques: pooled OLS, fixed vs. random effects as well as 2SLS estimations. Our main results suggest that while trade intensity may help to harmonize business cycles in Maghreb countries, the magnitude of this harmonization is lower than for industrial countries. Moreover, intra-industry trade causes a reverse –counterintuitive- effect. Many lessons are thereby learned.Business Cycles, Trade Intensity, Intra-Industry Trade, Maghreb

Heterogeneity of the Maghreb: the results of optimized monetary rules

The launch of the euro has fed doubts concerning the constitution of an optimal European monetary zone. Indeed, the differences in legal, institutional and cultural frameworks… as well as the diversity of the productive and financial European systems may have led to the idea that Europe does not constitute a viable monetary zone. In Africa, the decision of African Central Bank governors to adopt a single currency by 2021 and the call from the union of Maghreb banks in November 2007 to create one currency for the Maghreb (Algeria, Libya, Morocco, Mauritania and Tunisia) raises the same doubts as to the efficiency of such decisions. In this preliminary work, we have tried to evaluate implicitly the pertinence of such decision by showing in a first section the heterogeneity of Maghrebian monetary regimes. We have tried to illustrate in a second section this heterogeneity via a model describing the functioning of the economy of these countries. Finally, we have attempted to show in a third section the consequences of these heterogeneities by simulating optimal monetary rules defined for each country. Our results suggest that these countries will need divergent Taylor rules and that the decision to belong to the same monetary union where a common monetary policy will be conducted proved to be unsuitable

Toward Maghreb monetary unification:what does the theory and history tell us?

Since the beginning of the decade, numerous economic and monetary unification projects have aroused a lot of interest. The reinforcement of economic and monetary integration, especially in Europe, has set a trend for the creation of a monetary union in many others regions of the world. Since then, the debate has moved towards the study of the parameters that justify the creation of a single currency. However, another current of thought emphasized the fragility of the traditional theory and considered the criteria as incomplete, since this theory insists solely on a few elements concerning the adjustment process under various exchange regimes (Bogdan 2004). Also, many monetary unions have existed and lasted without meeting this theory’s criteria. Other economists recommend studying the history of these monetary unions so as to define the necessary conditions for the success of a monetary integration (Sharp 2005, Jonung 2002). Within Maghreb, the completion of the regional integration process, initiated in 1989 by the creation of the Arab Maghreb Union (AMU) and the establishment of the Maghreb monetary union would have a positive impact on economic growth, good governance and political stability. In this paper, we showed that the Maghreb Countries can not constitute a monetary block that satisfies the criteria of optimality. Moreover, the study of historical experiences also allowed us to verify that the MCs have to strengthen their political coordination and improve their budgetary and financial situations to establish a lasting monetary union. Finally, with the aim of a Maghreb monetary unification, we conclude with the idea that these countries have to make more efforts to gather economico-institutional conditions essential to the institution of one of the two preliminary proposed monetary systems, namely a pure float with inflation targeting or a currency board