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A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel?

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  • Termos, Ali

    (American University in Beirut)

  • Genc, Ismail H.

    (American University in Sharjah)

  • Naufal, George S

    (Texas A&M University)

Abstract

The strong economic ties between the GCC economies and the U.S. are manifested in three ways: currency peg, coupling of monetary policy, and the adoption of the U.S. dollar as the trading currency for oil. This paper examines how these dynamics result in a misalignment of the U.S. monetary policy with the business cycles of the GCC economies. The study shows how the staggering amount of remittances outflow of the GCC economies plays a stabilizing role as a tacit monetary policy tool. Incorporating remittances in the money demand equation results in a more robust model than otherwise. We further find that the effect of the Federal Funds rate on money demand in these countries diminishes in significance during the period of oil boom between 2002 and 2009. However, the transmission effect of the recession periods in the U.S. into the demand for money in the GCC countries is not statistically significant.

Suggested Citation

  • Termos, Ali & Genc, Ismail H. & Naufal, George S, 2015. "A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel?," IZA Discussion Papers 8810, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8810
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    1. Al-Abri, Almukhtar & Genc, Ismail H. & Naufal, George S, 2018. "The Impact of Government Spending on GDP in a Remitting Country," IZA Discussion Papers 11676, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    monetary policy; inflation; remittances; GCC;
    All these keywords.

    JEL classification:

    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East

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