In the literature on economic integration, the optimum currency area (OCA) theory says that there should be a high degree of trade between potential members of a monetary union for them to benefit from the use of a single currency. This study uses an augmented gravity model of trade to estimate the East African Community's (EAC) trade effects, as this community decided to participate in a monetary union by 2024. The study uses the fixed effect filter (FEF) estimator, which follows a two-step approach and outperforms the standard fixed effects (FE) estimator. The results indicate that EAC has the potential to increase trade among partner states by 122% more than expected from the normal trade levels. The study, therefore, supports the ongoing East African Monetary Union process. However, to improve the likelihood of creating a more sustainable monetary union, the study recommends these countries to primarily focus on the full implementation of the customs union and common market steps. The main contribution of this study is that it provides robust estimates of the EAC's effects on intra-regional trade using more recent data and updated econometric techniques.

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 analysing the comovement of business cycles. Cross-wavelet 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 a monetary union in the EAC as a whole. However, the three countries that form its core seem the most potential candidates for the proposed EAMU.

The question of how trade intensity affects the synchronization of business cycles is an important issue to consider for entry into a monetary union. This paper uses a panel of thirty-one African countries for the period 2000–2016 to assess whether trade integration among these countries has led to synchronization of the business cycle. Unlike most previous studies that estimated business cycle synchronization with correlation coefficients, in this paper, a time-varying index is applied to measure business cycle synchronization. From a methodological viewpoint, the common correlated effects mean group (CCEMG) estimates reveal a positive relationship between bilateral trade and business cycle synchronization among African countries. The same is true for East African Community countries. Therefore, it seems plausible to suggest that trade intensity among these countries may lead to a more synchronized business cycle; this empirical finding should be considered by EAC authorities for further debate on the readiness of the East African Monetary Union.

In this study, we investigate the degree to which inflation rates and their movements for countries in the East African Community (EAC) have become more similar, which is an important issue for the EAC’s goal of creating a common currency. We find that the five EAC countries (excluding South Sudan) have had a tendency to converge in their inflation-rate levels, and we show through an inflation-movement similarity index that inflation-rate changes between consecutive months trended toward becoming more similar between 1995 and 2018 for most country pairs from these EAC countries. We also find that the inflation correlations between these EAC countries seem favorable for monetary union when comparing these correlations to analogous ones for the 2001 European Monetary Union countries prior to the creation of the euro and to analogous ones for the West African Economic Monetary Union countries.