Country heterogeneity and long-run determinants of inflation in the Gulf Arab states
Applying 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.
(This abstract was borrowed from another version of this item.)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 36 (2012)
Issue (Month): 2 (06)
|Contact details of provider:|| Web page: http://onlinelibrary.wiley.com/journal/10.1111/%28ISSN%291753-0237|
|Order Information:||Web: http://ordering.onlinelibrary.wiley.com/subs.asp?ref=1753-0237&doi=10.1111/%28ISSN%291753-0237|
References listed on IDEAS
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.:
- Westerlund, Joakim, 2005.
"Testing for Error Correction in Panel Data,"
2005:11, Lund University, Department of Economics.
- Kamilya Tazhibayeva & Aasim M. Husain & Anna Ter-Martirosyan, 2008. "Fiscal Policy and Economic Cycles in Oil-Exporting Countries," IMF Working Papers 08/253, International Monetary Fund.
- Ariel Burstein & Martin Eichenbaum & Sergio T. Rebelo, 2002.
"Why Are Rates of Inflation So Low After Large Devaluations?,"
RCER Working Papers
486, University of Rochester - Center for Economic Research (RCER).
- Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2002. "Why Are Rates of Inflation So Low After Large Devaluations?," NBER Working Papers 8748, National Bureau of Economic Research, Inc.
- Burstein, Ariel Tomas & Eichenbaum, Martin & Rebelo, Sérgio, 2002. "Why Are Rates of Inflation So Low After large Devaluations," CEPR Discussion Papers 3178, C.E.P.R. Discussion Papers.
- Engle, Robert & Granger, Clive, 2015.
"Co-integration and error correction: Representation, estimation, and testing,"
Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- Christian Bayer & Christoph Hanck, 2013.
"Combining non-cointegration tests,"
Journal of Time Series Analysis,
Wiley Blackwell, vol. 34(1), pages 83-95, 01.
- Serena Ng & Pierre Perron, 1997.
"Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Boston College Working Papers in Economics
369, Boston College Department of Economics, revised 01 Sep 2000.
- Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
- Michael Sturm & François Gurtner & Juan Gonzalez Alegre, 2009. "Fiscal policy challenges in oil-exporting countries – a review of key issues," Occasional Paper Series 104, European Central Bank.
- M. Hashem Pesaran, 2004.
"Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure,"
CESifo Working Paper Series
1331, CESifo Group Munich.
- M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
- Pesaran, M. Hashem & Smith, Ron, 1995.
"Estimating long-run relationships from dynamic heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 79-113, July.
- Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
- Francesca Di Iorio & Stefano Fachin, 2009. "A residual-based bootstrap test for panel cointegration," Economics Bulletin, AccessEcon, vol. 29(4), pages 3222-3232.
- Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, December.
- Allan W. Gregory & Alfred A. Haug & Nicoletta Lomuto, 2004. "Mixed signals among tests for cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 89-98.
- Pesaran, M.H., 2003.
"A Simple Panel Unit Root Test in the Presence of Cross Section Dependence,"
Cambridge Working Papers in Economics
0346, Faculty of Economics, University of Cambridge.
- M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
- Basher, Syed Abul, 2010. "Has the non-oil sector decoupled from oil sector? A case study of Gulf Cooperation Council Countries," MPRA Paper 21059, University Library of Munich, Germany.
- Matteo Ciccarelli & Benoît Mojon, 2005.
Working Papers Central Bank of Chile
357, Central Bank of Chile.
- Ciccarelli, Matteo & Mojon, Benoît, 2005. "Global inflation," Working Paper Series 0537, European Central Bank.
- Matteo Ciccarelli & Benoît Mojon, 2008. "Global inflation," Working Paper Series WP-08-05, Federal Reserve Bank of Chicago.
- Matteo Ciccarelli & Benoît Mojon, 2007. "Global Inflation," Kiel Working Papers 1337, Kiel Institute for the World Economy.
- Ciccarelli, Matteo & Mojon, Benoît, 2006. "Global Inflation," Kiel Working Papers 1337, Kiel Institute for the World Economy (IfW).
- Michael W. Keran & Ahmed Abdullah al Malik, 1979. "Monetary sources of inflation in Saudi Arabia," Economic Review, Federal Reserve Bank of San Francisco, issue Win suppl.
- Magda Kandil & Hanan Morsy, 2011.
"Determinants Of Inflation In Gcc,"
Middle East Development Journal (MEDJ),
World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 141-158.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Pinelopi K. Goldberg & Michael M. Knetter, 1996.
"Goods Prices and Exchange Rates: What Have We Learned?,"
NBER Working Papers
5862, National Bureau of Economic Research, Inc.
- Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
- Damiaan Persyn & Joakim Westerlund, 2008. "Error-correction–based cointegration tests for panel data," Stata Journal, StataCorp LP, vol. 8(2), pages 232-241, June.
- Samarjit Das & Joerg Breitung, 2004.
"Panel Unit Root Tests under Cross- sectional Dependence,"
Econometric Society 2004 North American Summer Meetings
55, Econometric Society.
- Jörg Breitung & Samarjit Das, 2005. "Panel unit root tests under cross-sectional dependence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(4), pages 414-433.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
"Efficient Tests for an Autoregressive Unit Root,"
NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
- Westerlund, Joakim & Basher, Syed A., 2007.
"Mixed Signals Among Tests for Panel Cointegration,"
3261, University Library of Munich, Germany.
- Trapani, Lorenzo & Urga, Giovanni, 2010.
"Micro versus macro cointegration in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 155(1), pages 1-18, March.
- Lorenzo Trapani & Giovanni Urga, 2007. "Micro versus Macro Cointegration in Heterogeneous Panels," Working Papers 0711, Department of Economics and Technology Management, University of Bergamo.
- Jeroen J. M. Kremers & Neil R. Ericsson & Juan J. Dolado, 1992.
"The power of cointegration tests,"
International Finance Discussion Papers
431, Board of Governors of the Federal Reserve System (U.S.).
- Yoosoon Chang, 2000.
"Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency,"
Cowles Foundation Discussion Papers
1251, Cowles Foundation for Research in Economics, Yale University.
- Chang, Yoosoon, 2004. "Bootstrap unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 120(2), pages 263-293, June.
- Chang, Yoosoon, 2002. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Working Papers 2000-01, Rice University, Department of Economics.
- Yoosoon Chang, 2000. "Bootstrap Unit Root Tests in Panels with Cross-Sectional Dependency," Econometric Society World Congress 2000 Contributed Papers 1585, Econometric Society.
- Dubravko Mihaljek & Marc Klau, 2008. "Exchange rate pass-through in emerging market economies: what has changed and why?," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 103-130 Bank for International Settlements.
- Parker, Cameron & Paparoditis, Efstathios & Politis, Dimitris N., 2006. "Unit root testing via the stationary bootstrap," Journal of Econometrics, Elsevier, vol. 133(2), pages 601-638, August.
- Pesavento, Elena, 2000.
"Analytical Evaluation of the Power of Tests for the Absence of Cointegration,"
University of California at San Diego, Economics Working Paper Series
qt4cq4773c, Department of Economics, UC San Diego.
- Pesavento, Elena, 2004. "Analytical evaluation of the power of tests for the absence of cointegration," Journal of Econometrics, Elsevier, vol. 122(2), pages 349-384, October.
- Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
- Hesham Alogeel & Maher Hasan, 2008. "Understanding the Inflationary Process in the GCC Region; The Case of Saudi Arabia and Kuwait," IMF Working Papers 08/193, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:bla:opecrv:v:36:y:2012:i:2:p:170-203. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.