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Determinants of Inflation in GCC

  • Magda E. Kandil
  • Hanan Morsy

Inflationary pressures have heightened in the oil-rich Gulf Cooperation Council (GCC) since 2003. This paper studies determinants of inflation in GCC, using an empirical model that includes domestic and external factors. Inflation in major trading partners appears to be the most relevant foreign factor. In addition, oil revenues have reinforced inflationary pressures through growth of credit and aggregate spending. In the short-run, binding capacity constraints also explain higher inflation given increased government spending. Nonetheless, by targeting supply-side bottlenecks, the increase in government spending is easing capacity constraints and will ultimately help to moderate price inflation.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/82.

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Length: 34
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/82
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  1. 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.
  2. Juselius, Katarina, 1992. "Domestic and foreign effects on prices in an open economy: The case of Denmark," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 401-428, August.
  3. Altissimo, Filippo & Benigno, Pierpaolo & Rodriguez Palenzuela, Diego, 2005. "Long-Run Determinants of Inflation Differentials in a Monetary Union," CEPR Discussion Papers 5149, C.E.P.R. Discussion Papers.
  4. O. Liu & Olumuyiwa Adedeji, 2000. "Determinants of Inflation in the Islamic Republic of Iran; A Macroeconomic Analysis," IMF Working Papers 00/127, International Monetary Fund.
  5. David Romer, 1991. "Openness and inflation: theory and evidence," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  6. Calista Cheung, 2009. "Are Commodity Prices Useful Leading Indicators of Inflation?," Discussion Papers 09-5, Bank of Canada.
  7. Hofmann, Boris, 2006. "Do monetary indicators (still) predict euro area inflation?," Discussion Paper Series 1: Economic Studies 2006,18, Deutsche Bundesbank, Research Centre.
  8. Marta Campillo & Jeffrey A. Miron, 1997. "Why Does Inflation Differ across Countries?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 335-362 National Bureau of Economic Research, Inc.
  9. David T. Coe & C. John McDermott, 1997. "Does the Gap Model Work in Asia?," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 59-80, March.
  10. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 02/205, International Monetary Fund.
  11. Leo Bonato, 2007. "Money and Inflation in the Islamic Republic of Iran," IMF Working Papers 07/119, International Monetary Fund.
  12. Mame Astou Diouf, 2007. "Modeling Inflation for Mali," IMF Working Papers 07/295, International Monetary Fund.
  13. Kandil, Magda & Mirzaie, Aghdas, 2002. "Exchange rate fluctuations and disaggregated economic activity in the US: theory and evidence," Journal of International Money and Finance, Elsevier, vol. 21(1), pages 1-31, February.
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