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All Journal Economic Journal of Emerging Markets Jurnal Ekonomi Daerah (JEDA) Journal of Islamic Monetary Economics and Finance
Memet Agustiar, Memet
Department of Economics, University of Tanjungpura
Economics, Econometrics & Finance

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Journal : Journal of Islamic Monetary Economics and Finance

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THE SINGLE CURRENCY FOR ISLAMIC NATIONS: DO HETEROGENEITIES MATTER? Memet Agustiar
Journal of Islamic Monetary Economics and Finance Vol 4 No 2 (2018): NOVEMBER
Publisher : Bank Indonesia

Show Abstract | Download Original | Original Source | Check in Google Scholar | Full PDF (361.237 KB) | DOI: 10.21098/jimf.v4i2.964

Abstract

The purpose of this study is to assess the readiness of 44 OIC member countries to form a currency union and to test whether the Optimum Currency Area (OCA) criteria remain relevant to a large region like the OIC. Large geographic size is subject to socio-economic and geographic disparities. This study employs the OCA-index to estimate the degree of readiness of the OIC to form a currency union. Five selected criteria –business cycle synchronization, trade openness, inflation similarity, the size of the economy, and distance – were employed to determine the OCA using Ordinary Least Squares regression. The findings of this study estimate that 63 percent of pairs of countries in the OIC are ready to form a currency union. The selected OCA’s criteria present the best-fit variable in explaining the OCA for the OIC. This paper verifies that economic and geographic heterogeneities are not the main obstacle to forming a currency union. This study provides an important contribution to the theory of OCA primarily in clarifying the application of the OCA conditions in a large observation like the OIC, which comprises many countries and many blocs.
Co-Authors Nugroho, Yoyok Setyo Rosyadi, Rosyadi