Is the US dollar a suitable anchor for the newly proposed GCC currency?
AbstractResponses of inflation and non-oil output growth from the Gulf Cooperation Council (GCC) countries to monetary policy shocks from the United States (US) were estimated to determine whether there is evidence to support the US Dollar as the anchor for the proposed unified currency. A structural vector autoregression identified with short-run restrictions was employed for each country with Fed funds rate as the US monetary policy instrument, non-oil output growth, and inflation. The main results suggest that for inflation, the GCC countries show synchronised responses to monetary policy shocks from the US which are similar to inflation in the US, and for non-oil output growth, there is no clear indication that US monetary policy can be as effective for the GCC countries as it is domestically. Consequently, importing US monetary policy via a Dollar peg may guarantee only stable inflation for the GCC countries - not necessarily stable non-oil output growth. If the non-oil output response is made conscientiously - and there are concerns over the Dollar's ability to perform its role as a store of value - a basket peg with both the US Dollar and the Euro may be a sound alternative as confirmed by the variance decomposition analysis of our augmented SVAR with a proxy for the European short-term interest rate.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34003.
Date of creation: 2009
Date of revision: 2010
Publication status: Published in THe World Economy 12.33(2010): pp. 1898-1922
GCC Countries; US monetary policy shock; monetary union; currency peg; SVARs;
Other versions of this item:
- Rosmy Jean Louis & Mohamed Osman & Faruk Balli, 2010. "Is the US Dollar a Suitable Anchor for the Newly Proposed GCC Currency?," The World Economy, Wiley Blackwell, vol. 33(12), pages 1898-1922, December.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- F15 - International Economics - - Trade - - - Economic Integration
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ida Wolden Bache & Kai Leitemo, 2008. "The price puzzle: Mixing the temporary and permanent monetary policy shocks," Working Paper 2008/18, Norges Bank.
- Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
- James G. MacKinnon, 1995.
"Numerical Distribution Functions for Unit Root and Cointegration Tests,"
918, Queen's University, Department of Economics.
- MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
- Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 202-211, June.
- Mohsin S. Khan, 2009. "The GCC Monetary Union: Choice of Exchange Rate Regime," Working Paper Series WP09-1, Peterson Institute for International Economics.
- Barth, Marvin J III & Ramey, Valerie A, 2000.
"The Cost Channel of Monetary Transmissions,"
University of California at San Diego, Economics Working Paper Series
qt7rm5q9sk, Department of Economics, UC San Diego.
- Giordani, Paolo, 2000.
"An alternative explanation of the price puzzle,"
Working Paper Series in Economics and Finance
414, Stockholm School of Economics, revised 06 Dec 2000.
- Suleiman Abu-Bader & Aamer Abu-Qarn, 2006.
"On the Optimality of a GCC Monetary Union: Structural VAR, Common Trends and Common Cycles Evidence,"
225, Ben-Gurion University of the Negev, Department of Economics.
- Aamer S. Abu-Qarn & Suleiman Abu-Bader, 2008. "On the Optimality of a GCC Monetary Union: Structural VAR, Common Trends, and Common Cycles Evidence," The World Economy, Wiley Blackwell, vol. 31(5), pages 612-630, 05.
- Abu-Qarn, Aamer & Abu-Bader, Suleiman, 2006. "On the optimality of a GCC Monetary Union: Structural VAR, Common Trends and Common Cycles Evidence," MPRA Paper 971, University Library of Munich, Germany.
- Thomas Willett & Edward Tower, 1970. "Currency areas and exchange-rate flexibility," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 105(1), pages 48-65, September.
- Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2006.
"Inflation dynamics and the cost channel of monetary transmission,"
European Economic Review,
Elsevier, vol. 50(4), pages 995-1016, May.
- Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2004. "Inflation dynamics and the cost channel of monetary transmission," CFR Working Papers 04-01, University of Cologne, Centre for Financial Research (CFR).
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, 2004. "Inflation Dynamics And The Cost Channel Of Monetary Transmission," Royal Economic Society Annual Conference 2004 80, Royal Economic Society.
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, 2004. "Inflation Dynamics and the Cost Channel of Monetary Transmission," Money Macro and Finance (MMF) Research Group Conference 2004 18, Money Macro and Finance Research Group.
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, . "Inflation Dynamics and the Cost Channel of Monetary Transmission," Working Papers 2003_19, Business School - Economics, University of Glasgow, revised Oct 2003.
- Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
- Eric M. Leeper & Jennifer E. Roush, 2003.
"Putting "M" back in monetary policy,"
International Finance Discussion Papers
761, Board of Governors of the Federal Reserve System (U.S.).
- Behrouz Guerami & S. Nuri Erbas & George T. Abed, 2003. "The GCC Monetary Union: Some Considerations for the Exchange Rate Regime," IMF Working Papers 03/66, International Monetary Fund.
- Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
- Fischer, Christoph, 2012.
"Currency blocs in the 21st century,"
BOFIT Discussion Papers
24/2012, Bank of Finland, Institute for Economies in Transition.
- Christoph Fischer, 2011. "Currency blocs in the 21st century," Globalization and Monetary Policy Institute Working Paper 87, Federal Reserve Bank of Dallas.
- Fischer, Christoph, 2011. "Currency blocs in the 21st century," Discussion Paper Series 1: Economic Studies 2011,12, Deutsche Bundesbank, Research Centre.
- Jean Louis, Rosmy & Brown, Ryan & Balli, Faruk, 2011.
"On the feasibility of monetary union: Does it make sense to look for shocks symmetry across countries when none of the countries constitutes an optimum currency area?,"
Elsevier, vol. 28(6), pages 2701-2718.
- Jean Louis, Rosmy & Brown, Ryan & Balli, Faruk, 2011. "On the Feasibility of Monetary Union: Does It Make Sense to Look for Shocks Symmetry across Countries When None of the Countries Constitutes an Optimum Currency Area?," MPRA Paper 39942, University Library of Munich, Germany.
- Jean Louis, Rosmy & Balli, Faruk & Osman, Mohamed, 2010.
"On the choice of an anchor for the GCC currency: does the symmetry of shocks extend to both the oil and the non-oil sectors,"
38056, University Library of Munich, Germany.
- Rosmy Jean Louis & Faruk Balli & Mohamed Osman, 2012. "On the choice of an anchor for the GCC currency: does the symmetry of shocks extend to both the oil and the non-oil sectors?," International Economics and Economic Policy, Springer, vol. 9(1), pages 83-110, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.