On The Road to Monetary Union – Do Arab Gulf Cooperation Council Economies React in the same way to United States' Monetary Policy Shocks?
This paper empirically estimates the responses of inflation and non-oil output growth from Arab Gulf Cooperation Council (AGCC) Countries to monetary policy shocks from the United States (US) in order to determine whether there is evidence to support the US dollar as the anchor for the proposed unified currency. For this, a structural vector autoregression identified with short-run restrictions was employed for each country with fund rate as US monetary policy instrument, non-oil output growth, and inflation. The main results that are of interest to decision makers suggest that (i) with respect to inflation, AGCC countries show synchronized responses to monetary policy shocks from the US and these responses are similar to US own inflation; (ii) with respect to non-oil output growth, there is no clear indication that US monetary policy can do as good of a job for AGCC countries as it has done at home. Therefore, importing monetary policy from the United States via a dollar peg may guarantee stable inflation for AGCC countries but not necessarily stable non-oil output growth. To the extent that the non-oil output response is taken seriously and there are concerns over the dollar's ability to perform its role as a store of value, a basket peg with both the US dollar and the Euro may be a sound alternative as confirmed by the variance decomposition analysis of our augmented SVAR with a proxy for the European short-term interest rate.
|Date of creation:||Dec 2007|
|Date of revision:||Nov 2008|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
- Esteban Jadresic, 2002. "On a Common Currency for the GCC Countries," IMF Policy Discussion Papers 02/12, International Monetary Fund.
- Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999.
"Monetary policy shocks: What have we learned and to what end?,"
Handbook of Macroeconomics,
in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148
- Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
- Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc.
- Belkacem Laabas and Imed Limam, "undated". "Are GCC Countries Ready for Currency Union?," API-Working Paper Series 0203, Arab Planning Institute - Kuwait, Information Center.
- Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
- Eric M. Leeper & Jennifer E. Roush, 2003.
"Putting "M" back in monetary policy,"
Federal Reserve Bank of Cleveland, pages 1217-1264.
- Eric M. Leeper & Jennifer E. Roush, 2003. "Putting "M" back in monetary policy," International Finance Discussion Papers 761, Board of Governors of the Federal Reserve System (U.S.).
- Eric M. Leeper & Jennifer E. Roush, 2003. "Putting 'M' back in Monetary Policy," NBER Working Papers 9552, National Bureau of Economic Research, Inc.
- Sims, Christopher A., 1992.
"Interpreting the macroeconomic time series facts : The effects of monetary policy,"
European Economic Review,
Elsevier, vol. 36(5), pages 975-1000, June.
- Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- James G. MacKinnon, 1995.
"Numerical Distribution Functions for Unit Root and Cointegration Tests,"
918, Queen's University, Department of Economics.
- MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
- Behrouz Guerami & S. Nuri Erbas & George T. Abed, 2003. "The GCC Monetary Union; Some Considerations for the Exchange Rate Regime," IMF Working Papers 03/66, International Monetary Fund.
- Gabriel Sterne & Tamim Bayoumi, 1993.
"Temporary cycles or volatile trends? Economic fluctuations in 21 OECD economies,"
Bank of England working papers
13, Bank of England.
- Sterne, Gabriel & Bayoumi, Tamim, 1995. "Temporary Cycles or Volatile Trends? Economic Fluctuations in 21 OECD Economies," The Manchester School of Economic & Social Studies, University of Manchester, vol. 63(1), pages 23-51, March.
- Ugo Fasano-Filho & Andrea Schaechter, 2003. "Monetary Union Among Member Countries of the Gulf Cooperation Council," IMF Occasional Papers 223, International Monetary Fund.
- Giordani, Paolo, 2001.
"An Alternative Explanation of the Price Puzzle,"
Working Paper Series
125, Sveriges Riksbank (Central Bank of Sweden).
- Giordani, Paolo, 2000. "An alternative explanation of the price puzzle," SSE/EFI Working Paper Series in Economics and Finance 414, Stockholm School of Economics, revised 06 Dec 2000.
- Horvath, Julius & Ratfai, Attila, 2004. "Supply and demand shocks in accession countries to the Economic and Monetary Union," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 202-211, June.
- Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:11610. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.