Assessing the Feasibility of Optimum Currency Area in the OIC Countries: Using Fuzzy and Hard Clustering Algorithms

Document Type : Research Paper

Authors

1 PhD. Candidate in Economics, University of Tabriz

2 Professor of Economics, University of Tabriz

Abstract

The Organization of Islamic Cooperation (OIC) was established in 1971 and includes 57 Islamic countries. The most important goal of this organization is strengthening and expanding political, economic, and commercial ties and creating a common market among its member countries. Considering the successful experience of Euro area, it might be possible that a common currency area could help the OIC countries to achieve the integration. Therefore, the purpose of this study is to investigate the possibility of forming a common currency area among the OIC countries. Based on the convergence criteria presented in the optimum currency area literature, the study uses two different clustering algorithms, i.e. fuzzy and hard clustering methods to cluster the OIC countries. The results show that there are adequate similarities in the economic structures of the Arab Economic Union (AEU) countries. Therefore it seems plausible to create a common currency area among the AEU countries. In addition, a subgroup of the Economic Cooperation Organization (ECO) countries also can join this common monetary union.

Keywords

Main Subjects

References

  1. Achsani, N., and Partisiwi, T. (2010). Testing feasibility of Asean+3 single currency comparing optimum currency area and clustering approach. International Journal of Finance and Economics, 37 , 79-84.
  2. Ahan, C., Hong, K., and Chang, D. (2005). Is East Asia fit for an optimum currency area? An assessment of the economic feasibility of a higher degree of monetary cooperation in East Asia. Developing Economies, 44, 288-305.
  3. Amorim, R., and Hennig, C. (2015). Recovering the number of clusters in data sets with noise features using feature rescaling factors. Information Sciences, 324, 126–145.
  4. Artis, H., and Zhang, W. (1997). International business cycles and the ERM: is there a European business cycle. International Journal of Finance Economics, 2, 1-16.
  5. Bayomi, T., and Eichengreen, B. (1993). Shocking aspects of European monetary unification. Cambridge University press, Cambridge, 193–229.
  6. Biabani J., Shayegani, B., Nadri, K., and Mosab, A. (2012). A study of crowding-out and crowding-in effects of government expenditures on construction sector from financing perspective.  Journal of Economic Research and Policies, 20 (62), 39-78 (In Persian).
  7. Couhard, C., Coulibaly, I., and Demmete, O. (2013). Anchor currency and real exchange rate dynamics in the CFA France zone. Economic Modelling, 33, 722-732.
  8. De Grauwe, P. (1997). The economics of monetary integration. Oxford university press.
  9. Derakhshideh, S., and Jalaee, A. (2016). The feasibility of optimal currency area formation between Iran and Shanghai group using fuzzy clustering algorithm approach. International Journal of Humanities and Cultural Studies, 2016, 1036-1047.
  10.  Friedman, M. (1953). The case for flexible exchange rates. Essays in Positive Economics (Chicago).
  11.  Frankel J., and Rose, A. (1998). Is EMU more justifiable ex post than ex ante. European Economic Review, 41, 753–760.
  12.  Irac, D., and Lopez, J. (2015). Euro area structural convergence? a multi-criterion cluster analysis, International Economics, 143, 1-22.
  13. Ishiyama, I. (1975). The theory of optimum currency areas: a survey. Staff Papers of International Monetary Fund, 22, 344-383.
  14.  Kenen, P. (1969). The theory of optimum currency area: an electic view. in: monetary problem of international economy, Mundell, R.A. and A.K. Swoboda, University of Chicago Press, Chicago, 41-60.
  15.  Kia, Z. (2014). A review study on fuzzy clustering algorithms. First National Conference on Clustering Algorithms and their Applications on Science and engineering, Mazandaran, Pardisan Institute (In Persian). 
  16.  Lee, G., and Azali, M. (2012).  Is East Asia an optimum currency area?.  Economic Modeling, 29, 87-95.
  17.  Lee, G. (2011). Gold dinar for the Islamic countries?. Economic Modeling, 28, 1573-1586.
  18.  Mckinnon, R. (1963). Optimum currency area. American Economic Review, 53, 717 -725.
  19.  Mkenda, B. (2001). Is East Africa an optimum currency area?. Working Papers in Economics, No.41, Department of Economics, University of Gothenburg.
  20.  Monfort, M., Cuestas, C., and Ordonez, J. (2014), Real convergence in Europe: a cluster analysis. Economic Modeling, 33, 689-694.
  21.  Mongelli, P. (2002). New views on the optimum currency area theory: what is EMU telling us?. Europe Central Bank Working Paper Series, No. 138.
  22.  Mongelli, P. (2008). European economic and monetary integration and the optimum currency area theory. Journal of Economic and Financial Affairs.
  23.  Mundell, R. (1961). A theory of optimum currency areas. American Economic Review, 51, 509–517.
  24.  Mundel, R. (1973). Uncommon arguments for common currencies, In H. G. Johnson and A. K. Swoboda, The economics of common currencies, Allen and Unwin, 114-32.
  25.  Quah, C. h., and Crowley, P. (2010). Monetary integration in east asia: a hierarchical clustering approach. International Finance, 13(2), 283-309.
  26.  Quere, A., and Coupet, M. (2005). On the adequacy on monetary arrangnments in Sub-Saharan Africa, the World Economy, 28(3), 349-373.
  27. Tsangarides, C., and Qureshi, M. (2007). Monetary union membership in West Africa: a cluster analysis. World Development, 36(7),1261-1279.

Files

Share

How to cite

Statistics