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Impacts of global and domestic shocks on inflation and economic growth for actual and potential GCC member countries

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  • Kim, Won Joong
  • Hammoudeh, Shawkat

Abstract

By using a modern structural VAR with block exogeneity and identifying restrictions, this paper analyzes several global and regional oil and macroeconomic relationships related to the selected incumbent GCC member countries – Kuwait, Oman, Saudi Arabia – and the potential member Jordan. First, it examines the global macroeconomic linkages among the dollar exchange rate, oil price, China's producer price, U.S.'s export price, EU's export price and Japan's export price. Second, it investigates the effects of global and country-specific shocks on the industrial production and consumer price indices of these GCC member countries and the potential member Jordan. It thereby examines which individual global/local shocks command more importance in explaining the variations in the economic growth and inflation of each actual and potential GCC member. Third, it analyzes the similarities in economic growth and inflation among the GCC countries after controlling for different global and country-specific shocks. The results suggest that the overall CPI inflation rates of Kuwait, Oman, Saudi Arabia and Jordan are highly and positively correlated. The economic growth of Jordan shows negative correlations with those of the member countries. If the GCC members are to focus only on stabilizing inflation, there is no harm for them to accept Jordan as a new GCC member. However, if the GCC's objective is not only the stabilization of inflation but also the business cycle synchronization, the GCC members should be more cautious in accepting Jordan as a new member.

Suggested Citation

  • 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, vol. 27(C), pages 298-317.
  • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:298-317 DOI: 10.1016/j.iref.2012.10.009
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Aloui, Chaker & Hkiri, Besma & Nguyen, Duc Khuong, 2016. "Real growth co-movements and business cycle synchronization in the GCC countries: Evidence from time-frequency analysis," Economic Modelling, Elsevier, vol. 52(PB), pages 322-331.
    2. Abouwafia, Hashem E. & Chambers, Marcus J., 2015. "Monetary policy, exchange rates and stock prices in the Middle East region," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 14-28.
    3. Murshed, Hasan & Nakibullah, Ashraf, 2015. "Price level and inflation in the GCC countries," International Review of Economics & Finance, Elsevier, pages 239-252.
    4. repec:ipg:wpaper:2014-079 is not listed on IDEAS
    5. Chang, Tsangyao & Chu, Hsiao-Ping & Ranjbar, Omid, 2014. "Are GDP fluctuations transitory or permanent in African countries? Sequential Panel Selection Method," International Review of Economics & Finance, Elsevier, pages 380-399.
    6. Lean, Hooi Hooi & McAleer, Michael & Wong, Wing-Keung, 2015. "Preferences of risk-averse and risk-seeking investors for oil spot and futures before, during and after the Global Financial Crisis," International Review of Economics & Finance, Elsevier, pages 204-216.
    7. Ahdi Noomen Ajmi & Ghassen El-montasser & Shawkat Hammoudeh & Duc Khuong Nguyen, 2014. "Oil prices and MENA stock markets: new evidence from nonlinear and asymmetric causalities during and after the crisis period," Applied Economics, Taylor & Francis Journals, vol. 46(18), pages 2167-2177, June.
    8. Khalifa, Ahmed A.A. & Hammoudeh, Shawkat & Otranto, Edoardo, 2014. "Patterns of volatility transmissions within regime switching across GCC and global markets," International Review of Economics & Finance, Elsevier, pages 512-524.
    9. Ghosh, Amit, 2014. "A comparison of exchange rate regime choice in emerging markets with advanced and low income nations for 1999–2011," International Review of Economics & Finance, Elsevier, pages 358-370.

    More about this item

    Keywords

    Structural VAR; Block exogeneity; Export prices; Oil price; Pass-through;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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