Determinants of Inflation in GCC

Author/Editor:

Magda E. Kandil ; Hanan Morsy

Publication Date:

April 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Inflationary pressures have heightened in the oil-rich Gulf Cooperation Council (GCC) since 2003. This paper studies determinants of inflation in GCC, using an empirical model that includes domestic and external factors. Inflation in major trading partners appears to be the most relevant foreign factor. In addition, oil revenues have reinforced inflationary pressures through growth of credit and aggregate spending. In the short-run, binding capacity constraints also explain higher inflation given increased government spending. Nonetheless, by targeting supply-side bottlenecks, the increase in government spending is easing capacity constraints and will ultimately help to moderate price inflation.

Series:

Working Paper No. 09/82

Subject:

Cooperation Council for the Arab States of the Gulf Cross country analysis Currency pegs Domestic liquidity Economic models Exchange rate depreciation Exchange rate pass-through External shocks Inflation Monetary policy

English

Publication Date:

April 1, 2009

ISBN/ISSN:

9781451872293/1018-5941

Stock No:

WPIEA2009082

Format:

Paper

Pages:

34

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