Is the US dollar a suitable anchor for the newly proposed GCC currency?
Responses of inflation and non-oil output growth from the Gulf Cooperation Council (GCC) countries to monetary policy shocks from the United States (US) were estimated to determine whether there is evidence to support the US Dollar as the anchor for the proposed unified currency. A structural vector autoregression identified with short-run restrictions was employed for each country with Fed funds rate as the US monetary policy instrument, non-oil output growth, and inflation. The main results suggest that for inflation, the GCC countries show synchronised responses to monetary policy shocks from the US which are similar to inflation in the US, and for non-oil output growth, there is no clear indication that US monetary policy can be as effective for the GCC countries as it is domestically. Consequently, importing US monetary policy via a Dollar peg may guarantee only stable inflation for the GCC countries - not necessarily stable non-oil output growth. If the non-oil output response is made conscientiously - 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:||2009|
|Date of revision:||2010|
|Publication status:||Published in THe World Economy 12.33(2010): pp. 1898-1922|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- 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.
- Giordani, Paolo, 2004.
"An alternative explanation of the price puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 51(6), pages 1271-1296, September.
- 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.
- Giordani, Paolo, 2001. "An Alternative Explanation of the Price Puzzle," Working Paper Series 125, Sveriges Riksbank (Central Bank of Sweden).
- Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2004.
"Inflation dynamics and the cost channel of monetary transmission,"
CFR Working Papers
04-01, University of Cologne, Centre for Financial Research (CFR).
- Chowdhury, Ibrahim & Hoffmann, Mathias & Schabert, Andreas, 2006. "Inflation dynamics and the cost channel of monetary transmission," European Economic Review, Elsevier, vol. 50(4), pages 995-1016, May.
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, . "Inflation Dynamics and the Cost Channel of Monetary Transmission," Working Papers 2003_19, Business School - Economics, University of Glasgow, revised Oct 2003.
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, 2004. "Inflation Dynamics And The Cost Channel Of Monetary Transmission," Royal Economic Society Annual Conference 2004 80, Royal Economic Society.
- Ibrahim Chowdhury & Mathias Hoffmann & Andreas Schabert, 2004. "Inflation Dynamics and the Cost Channel of Monetary Transmission," Money Macro and Finance (MMF) Research Group Conference 2004 18, Money Macro and Finance Research Group.
- Gali, Jordi, 1992.
"How Well Does the IS-LM Model Fit Postwar U.S. Data,"
The Quarterly Journal of Economics,
MIT Press, vol. 107(2), pages 709-38, May.
- Tom Doan, . "RATS programs to replicate Gali's QJE 1992 results," Statistical Software Components RTZ00063, Boston College Department of Economics.
- Ida Wolden Bache & Kai Leitemo, 2008. "The price puzzle: Mixing the temporary and permanent monetary policy shocks," Working Paper 2008/18, Norges Bank.
- 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 601-18, Nov.-Dec..
- James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
- Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
- Marvin J. Barth III & Valerie A. Ramey, 2000.
"The Cost Channel of Monetary Transmission,"
NBER Working Papers
7675, National Bureau of Economic Research, Inc.
- Barth, Marvin J III & Ramey, Valerie A, 2000. "The Cost Channel of Monetary Transmissions," University of California at San Diego, Economics Working Paper Series qt7rm5q9sk, Department of Economics, UC San Diego.
- Thomas Willett & Edward Tower, 1970. "Currency areas and exchange-rate flexibility," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 105(1), pages 48-65, September.
- Abu-Qarn, Aamer & Abu-Bader, Suleiman, 2006.
"On the optimality of a GCC Monetary Union: Structural VAR, Common Trends and Common Cycles Evidence,"
971, University Library of Munich, Germany.
- Aamer S. Abu-Qarn & Suleiman Abu-Bader, 2008. "On the Optimality of a GCC Monetary Union: Structural VAR, Common Trends, and Common Cycles Evidence," The World Economy, Wiley Blackwell, vol. 31(5), pages 612-630, 05.
- Mohsin S. Khan, 2009.
"The GCC Monetary Union: Choice of Exchange Rate Regime,"
Working Paper Series
WP09-1, Peterson Institute for International Economics.
- Mohsin S. Khan, 2010. "The GCC Monetary Union: Choice of Exchange Rate Regime," Chapters, in: Currency Union and Exchange Rate Issues, chapter 5 Edward Elgar.
- Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
- Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:34003. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.