Country Heterogeneity and Long-Run Determinants of Inflation in the Gulf Arab States
AbstractApplying nonstationary panel data econometric methods, this paper analyzes the major sources and transmission of inflation in the Gulf Cooperation Council (GCC) countries over the 1980-2008 period. We argue that, in GCC countries, money is essentially demand determined, so that the high collinearity between money and aggregate demand indicators such as non-hydrocarbon output is expected and should be dealt with accordingly. Several important results emerge from the analysis. First, the money supply stands out as a significant determinant of inflation both in short- and long-run. Both foreign prices and the nominal effective exchange rate are shown to be more successful in explaining inflation in the long-run than the short-run. The half-life of the speed of adjustment reveals that it takes about 2.9 years for 50% of a shock to the long-run equilibrium to dissipate. An implication of our results is the case it makes for more sovereign monetary policies in GCC countries.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 27348.
Date of creation: 09 Dec 2010
Date of revision:
Inflation; Monetary policy; Fiscal policy; Exchange rates; Oil price; Panel data.;
Other versions of this item:
- 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, vol. 36(2), pages 170-203, 06.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-18 (All new papers)
- NEP-ARA-2010-12-18 (MENA - Middle East & North Africa)
- NEP-CBA-2010-12-18 (Central Banking)
- NEP-CWA-2010-12-18 (Central & Western Asia)
- NEP-MAC-2010-12-18 (Macroeconomics)
- NEP-MON-2010-12-18 (Monetary Economics)
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