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Investigating Long-Run Demand for Broad Money in the Gulf Arab Countries

  • Syed Basher


    (Qatar Central Bank)

  • Stefano Fachin


    (Universita' di Roma "La Sapienza")

We estimate the long-run demand for broad money at the Gulf Cooperation Council area level (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)) and at single country level over the 1980-2009 period. Applying time series and panel econometric tests, we first document the existence of long-run equilibrium relationship for money demand – both nationally and regionally. The estimated income- and interest elasticities in Qatar, Saudi Arabia and the UAE provide a validation for the Baumol-Tobin version of the inventory analysis of the transactions demand for money; while income elasticities in the other GCC economies reflect portfolio demand more strongly than transaction demand with a generally lower interest rate (semi-)elasticities. We discuss how the movements in income velocity can reconcile the varying elasticities documented across the six countries. The different pooled estimators of the regional money demand produce estimated income elasticities in the neighborhood of unity, while interest rate elasticities tend to be smaller than -0.2.

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Paper provided by Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome in its series DSS Empirical Economics and Econometrics Working Papers Series with number 2012/6.

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Length: 29 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:sas:wpaper:20126
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  16. Elsamadisy, Elsayed Mousa & Alkhater, Khalid Rashid & Basher, Syed Abul, 2013. "Pre- versus Post-Crisis Central Banking in Qatar," MPRA Paper 45310, University Library of Munich, Germany.
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