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Determinants of Inflation in GCC

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  • Magda E. Kandil
  • Hanan Morsy

Abstract

Inflationary pressures have heightened in the oil-rich Gulf Cooperation Council (GCC) since 2003. This paper studies determinants of inflation in GCC, using an empirical model that includes domestic and external factors. Inflation in major trading partners appears to be the most relevant foreign factor. In addition, oil revenues have reinforced inflationary pressures through growth of credit and aggregate spending. In the short-run, binding capacity constraints also explain higher inflation given increased government spending. Nonetheless, by targeting supply-side bottlenecks, the increase in government spending is easing capacity constraints and will ultimately help to moderate price inflation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/82.

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Length: 34
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/82

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Keywords: External shocks; Domestic liquidity; Currency pegs; Exchange rate depreciation; Economic models; inflation; inflationary pressures; price inflation; money supply; monetary growth; monetary policy; monetary fund; price level; monetary phenomenon; aggregate demand; monetary indicators; monetary dynamics; inflation equation; macroeconomic analysis; inflation rate; average inflation; demand for money; independent monetary policy; effects of inflation; forecasting inflation; monetary union; money demand; quantity theory;

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References

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  1. O. Liu & Olumuyiwa Adedeji, 2000. "Determinants of Inflation in the Islamic Republic of Iran," IMF Working Papers 00/127, International Monetary Fund.
  2. Romer, David, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(4), pages 869-903, November.
  3. Juselius, Katarina, 1992. "Domestic and foreign effects on prices in an open economy: The case of Denmark," Journal of Policy Modeling, Elsevier, Elsevier, vol. 14(4), pages 401-428, August.
  4. David T. Coe & C. John McDermott, 1997. "Does the Gap Model Work in Asia?," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 59-80, March.
  5. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 02/205, International Monetary Fund.
  6. Altissimo, Filippo & Benigno, Pierpaolo & Rodriguez Palenzuela, Diego, 2005. "Long-Run Determinants of Inflation Differentials in a Monetary Union," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5149, C.E.P.R. Discussion Papers.
  7. Leo Bonato, 2007. "Money and Inflation in the Islamic Republic of Iran," IMF Working Papers 07/119, International Monetary Fund.
  8. Marta Campillo & Jeffrey A. Miron, 1996. "Why Does Inflation Differ Across Countries?," NBER Working Papers 5540, National Bureau of Economic Research, Inc.
  9. Hofmann, Boris, 2006. "Do monetary indicators (still) predict euro area inflation?," Discussion Paper Series 1: Economic Studies 2006,18, Deutsche Bundesbank, Research Centre.
  10. Hesham Alogeel & Maher Hasan, 2008. "Understanding the Inflationary Process in the GCC Region," IMF Working Papers 08/193, International Monetary Fund.
  11. Kandil, Magda & Mirzaie, Aghdas, 2002. "Exchange rate fluctuations and disaggregated economic activity in the US: theory and evidence," Journal of International Money and Finance, Elsevier, Elsevier, vol. 21(1), pages 1-31, February.
  12. Calista Cheung, 2009. "Are Commodity Prices Useful Leading Indicators of Inflation?," Discussion Papers 09-5, Bank of Canada.
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Citations

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Cited by:
  1. Moretti, Laura, 2014. "The determinants of inflation differentials in the euro area," CFS Working Paper Series 451, Center for Financial Studies (CFS).
  2. Alpaslan, Baris & Demirel, Baki, 2014. "Exchange Rate Pass-Through Effect on Prices and Inflation Targeting: A Comparison of Emerging Market Economies," MPRA Paper 53726, University Library of Munich, Germany.
  3. D'Adamo, Gaetano & Rovelli, Riccardo, 2013. "Labor Market Institutions and the Response of Inflation to Macro Shocks in the EU: A Two-Sector Analysis," IZA Discussion Papers 7616, Institute for the Study of Labor (IZA).
  4. Syed Abul Basher & Elsayed Mousa Elsamadisy, 2012. "Country heterogeneity and long-run determinants of inflation in the Gulf Arab states," OPEC Energy Review, Organization of the Petroleum Exporting Countries, Organization of the Petroleum Exporting Countries, vol. 36(2), pages 170-203, 06.
  5. Tidiane Kinda, 2011. "Modeling Inflation in Chad," IMF Working Papers 11/57, International Monetary Fund.
  6. Kim, Won Joong & Hammoudeh, Shawkat, 2013. "Impacts of global and domestic shocks on inflation and economic growth for actual and potential GCC member countries," International Review of Economics & Finance, Elsevier, Elsevier, vol. 27(C), pages 298-317.
  7. Marzovilla, Olga & Mele, Marco, 2010. "From dollar peg to basket peg:the experience of Kuwait in view of the GCC monetary unification," MPRA Paper 21605, University Library of Munich, Germany.
  8. Quint, Dominic, 2014. "Is it really more dispersed? Measuring and comparing the stress from the common monetary policy in the euro area," Discussion Papers 2014/13, Free University Berlin, School of Business & Economics.
  9. Marzovilla, Olga, 2010. "Impact of global economic imbalance on migrant workers and economies of the Gulf Cooperation Council," MPRA Paper 24210, University Library of Munich, Germany.
  10. Oral Williams & Kamiar Mohaddes, 2011. "Inflation Differentials in the GCC," IMF Working Papers 11/294, International Monetary Fund.

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