Inflation Differentials in the GCC: Does the Oil Cycle Matter?
IMF Working Papers, December 1, 2011
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Bibliographic details
- Authors: Oral Williams, Kamiar Mohaddes
- Published: December 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463927288.001
Summary and Main Findings
- Paper investigates main factors driving inflation differentials in the Gulf Cooperation Council (GCC) region for the past two decades using a pairwise approach.
- Results suggest that inflation differentials in the GCC are largely influenced by the oil cycle, mainly through the credit and fiscal channels.
- After controlling for cyclical factors, convergence increased even during the recent oil boom.
Methodology
- Analytical approach: pairwise approach.
- Data scope: GCC region, past two decades.
- Emphasis on channels linking oil cycle to inflation differentials: credit channel and fiscal channel.
Policy Implications and Recommendations
- Closer coordination of fiscal policies will be key for facilitating closer integration of the GCC economies and ahead of the move to a monetary union.
- Managing credit growth differentials and government expenditure growth differentials are implied priorities given the identified channels.
Subject Areas and Keywords (as listed)
- Subject: Consumer price indexes, Credit, Fiscal policy, Fiscal stance, Foreign exchange, Inflation, Money, Nominal effective exchange rate, Prices
- Keywords: Asia and Pacific, Consumer price indexes, convergence, country inflation equation, Credit, credit growth differential, differentials in the GCC, Europe, Fiscal stance, GCC country, GCC inflation rates, government expenditure growth differential, Gulf Cooperation Council (GCC) countries., Inflation, inflation differential, Inflation differentials, inflation gap, monetary union, Nominal effective exchange rate, North Africa, oil prices, oil revenue differential, pairwise approach, Pairwise differential, panel data, rent weight differential, weight differential, WP