Determinants of Inflation in GCC
April 1, 2009
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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.
Subject: Capacity utilization, Exchange rate adjustments, Exchange rates, Expenditure, Foreign exchange, Inflation, Prices, Production
Keywords: Capacity utilization, determinants of inflation, domestic policies, excess demand, exchange rate, Exchange rate adjustments, exchange rate depreciation, exchange rate pass-through, Exchange rates, external shocks, GCC country, Inflation, inflation in GCC, inflation in trading partners, price, price inflation, WP
Pages:
34
Volume:
2009
DOI:
Issue:
082
Series:
Working Paper No. 2009/082
Stock No:
WPIEA2009082
ISBN:
9781451872293
ISSN:
1018-5941
