Basher, Syed Abul and Elsamadisy, Elsayed Mousa (2010): Country Heterogeneity and Long-Run Determinants of Inflation in the Gulf Arab States.
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Applying nonstationary panel data econometric methods, this paper analyzes the major sources and transmission of inflation in the Gulf Cooperation Council (GCC) countries over the 1980-2008 period. We argue that, in GCC countries, money is essentially demand determined, so that the high collinearity between money and aggregate demand indicators such as non-hydrocarbon output is expected and should be dealt with accordingly. Several important results emerge from the analysis. First, the money supply stands out as a significant determinant of inflation both in short- and long-run. Both foreign prices and the nominal effective exchange rate are shown to be more successful in explaining inflation in the long-run than the short-run. The half-life of the speed of adjustment reveals that it takes about 2.9 years for 50% of a shock to the long-run equilibrium to dissipate. An implication of our results is the case it makes for more sovereign monetary policies in GCC countries.
|Item Type:||MPRA Paper|
|Original Title:||Country Heterogeneity and Long-Run Determinants of Inflation in the Gulf Arab States|
|Keywords:||Inflation, Monetary policy, Fiscal policy, Exchange rates, Oil price, Panel data.|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General
C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models
|Depositing User:||Syed Basher|
|Date Deposited:||10. Dec 2010 22:40|
|Last Modified:||08. Mar 2015 08:47|
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