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Journal of Economic Integration 2018 December;33(4) :629-658.
DOI: https://doi.org/10.11130/jei.2018.33.4.629
Business Cycle Synchronization and Core-Periphery Patterns in the East African Community
: A Wavelet Approach
Yvonne Umulisa and 
Olivier Habimana 
Department of Economics, Finance and Statistics, Jönköping University, Jönköping, Sweden School of Economics, College of Business and Economics, University of Rwanda, Kigali, Rwanda
School of Economics, College of Business and Economics, University of Rwanda, Kigali, Rwanda
Corresponding Author: Yvonne Umulisa ,Email: Yvonne.Umulisa@ju.se
Copyright ©2018 Journal of Economic Integration
ABSTRACT
Optimum currency area theory suggests that various characteristics are needed for a successful monetary union, including similarities in economic structures for both shocks and business cycles. Accordingly, this study uses continuous wavelets to investigate business cycle synchronization among countries of the East African Community, which is, a region working toward the establishment of a monetary union by 2024. Wavelet decomposition is an alternative and powerful tool for analyzing the comovement of business cycles. Crosswavelet coherency suggests that the business cycles of Tanzania and Uganda were in phase with that of Kenya’s at high and medium frequencies in the early 1990s and after the establishment of the customs union in 2005. Wavelet spectra clustering shows that Kenya, Tanzania, and Uganda form the core of the monetary union, whereas Burundi and Rwanda form the periphery. Overall, the wavelet analysis highlights the significance of asymmetric shocks and the prevalence of core-periphery patterns, which casts doubts on the eventual viability of the East African Monetary Union.

JEL Classification
E32: Business Fluctuations; Cycles
F15: Economic Integration
F45: Macroeconomic Issues of Monetary Unions
Keywords: Business cycle synchronization | East African monetary union | Optimum currency area | Wavelet analysis
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