Currency union in the East African community: a fractional integration approach

Resumen: This study examines inflation rates in the five countries that belong to the East African Community (EAC) and which recently signed a protocol outlining their plans for launching a monetary union within 10 years. Its aim is to examine the persistence in inflation levels. As literature argues about monetary unions, countries hoping to form a union should present similar inflation patterns. Our study shows that the countries present non-mean reversion, confirming that shocks will not recover in the long run. Moreover, fractional co-integration relationships are found between all countries with the exception of Tanzania.