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Pre- versus Post-Crisis Central Banking in Qatar

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  • Elsamadisy, Elsayed Mousa
  • Alkhater, Khalid Rashid
  • Basher, Syed Abul

Abstract

In the years before the global financial crisis of 2008--2010, Qatar experienced a huge build-up of liquidity surplus in the banking system, mainly driven by surging net capital inflows. This paper identifies various sources of interbank liquidity in Qatar and discusses the various implications of structural primary liquidity surplus for the money market in particular and the economy at large. The paper attempts to evaluate the Qatar Central Bank policy making and conduct during the pre- and post-crisis periods within a framework of the Austrian monetary overinvestment theories, and concludes that the central bank had forcibly committed several forced monetary policy mistakes, which resulted in a breakdown in the interest rate channel of the monetary policy transmission mechanism. This led to the inability of the central bank to control the interbank interest rate and to an accelerating inflation rate during the pre-crisis years. In contrast, a dramatic change in the central bank's monetary policy framework and a deliberate monetary policy mistake on behalf of the central bank resulted in a restoration of the interest rate channel of the monetary policy transmission mechanism, stabilization of the interbank interest rate close to the central bank's policy rate and a sharp deceleration in the inflation rate in the post-crisis period. The paper concludes by offering brief policy recommendations.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 45310.

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Date of creation: 21 Mar 2013
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Handle: RePEc:pra:mprapa:45310

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Keywords: Monetary policy framework; Monetary policy mistakes; Liquidity management; Structural liquidity surplus; Financial crisis.;

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  1. 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.
  2. Marga PEETERS, 2011. "The Changing Pattern in International Trade and Capital Flows of the Gulf Cooperation Council Countries in Comparison with other Oil-Exporting Countries," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 1(7), pages 29, December.
  3. Mina, Wasseem Michel, 2011. "Institutional Reforms Debate and FDI Flows to MENA Region: Does One .Best. Fit All?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Hoffmann, Andreas, 2013. "Did the Fed and ECB react asymmetrically with respect to asset market developments?," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 197-211.
  5. Christian Glocker & Pascal Towbin, 2012. "Reserve Requirements for Price and Financial Stability: When Are They Effective?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 65-114, March.
  6. Hoffmann, Andreas & Schnabl, Gunther, 2009. "A Vicious Cycle of Manias, Crashes and Asymmetric Policy Responses - An Overinvestment View," MPRA Paper 18532, University Library of Munich, Germany.
  7. DANNE, Christian & SCHNABL, Gunther, 2008. "A role model for China? Exchange rate flexibility and monetary policy in Japan," China Economic Review, Elsevier, vol. 19(2), pages 183-196, June.
  8. Anil K. Kashyap & Jeremy C. Stein, 2012. "The Optimal Conduct of Monetary Policy with Interest on Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 266-82, January.
  9. Bindseil, Ulrich & Camba-Mendez, Gonzalo & Hirsch, Astrid & Weller, Benedict, 2006. "Excess reserves and the implementation of monetary policy of the ECB," Journal of Policy Modeling, Elsevier, vol. 28(5), pages 491-510, July.
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