Regional Integration, Monetary Cooperation: Evidence from Global VAR Models for the Member States of the Shanghai Cooperation Organization

Abstract

Using quarterly data over the 1996 Q1 to 2015 Q5 period and a global vector regression (GVAR) model, this article empirically investigates the effect of supply, demand, and external shocks on member countries of the Shanghai Cooperation Organization (SCO) in order to examine if these countries have the ground to form a monetary union. The results suggest asymmetric response of central banks in these countries to domestic and external shocks and differentials in the impulse response of the macroeconomic variables to shocks: the response of the central banks of Kyrgyzstan and Russia to domestic shocks and of Belarus, Kyrgyzstan, and Russia to external shocks are short term and severe. Based on our results, forming a monitory union may not be feasible.