{
  "title": "Monetary Policy Transmission in the GCC Countries",
  "publication": "IMF Working Papers, May 1, 2012",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-transmission-in-the-gcc-countries-25934",
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  "summary": "The GCC countries maintain a policy of open capital accounts and a pegged (or nearly-pegged) exchange rate, thereby reducing their freedom to run an independent monetary policy.",
  "sections": [
    {
      "heading": "Key findings",
      "content": "- The GCC countries maintain a policy of open capital accounts and a pegged (or nearly-pegged) exchange rate, thereby reducing their freedom to run an independent monetary policy.\n- The pass-through of policy rates to retail rates is on the low side, reflecting the shallowness of money markets and the manner in which GCC central banks operate.\n- In addition to policy rates, the GCC monetary authorities use reserve requirements, loan-to-deposit ratios, and other macroprudential tools to affect liquidity and credit.\n- Continued efforts to develop the domestic financial markets will increase interest rate pass-through and strengthen monetary policy transmission."
    },
    {
      "heading": "Econometric evidence and transmission dynamics",
      "content": "- A panel vector auto regression (panel VAR) model suggests that U.S. monetary policy has a strong and statistically significant impact on:\n  - broad money,\n  - non-oil activity,\n  - inflation\n  in the GCC region.\n- Unanticipated shocks to broad money:\n  - affect prices,\n  - do not stimulate growth."
    },
    {
      "heading": "Analysis of constraints on monetary independence",
      "content": "- Open capital accounts combined with a pegged (or nearly-pegged) exchange rate limit the scope for independent domestic monetary policy in the GCC.\n- Shallow domestic money markets reduce the effectiveness of policy-rate changes in transmitting to retail lending and deposit rates.\n- The operational practices of GCC central banks contribute to low interest-rate pass-through."
    },
    {
      "heading": "Policy instruments observed",
      "content": "- Central bank policy rates (with limited pass-through to retail rates).\n- Reserve requirements.\n- Loan-to-deposit ratios.\n- Other macroprudential tools aimed at managing liquidity and credit conditions."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Deepening domestic financial markets is essential to:\n  - increase interest-rate pass-through from policy rates to retail rates,\n  - strengthen overall monetary policy transmission.\n- Given the strong external influence of U.S. monetary policy on GCC broad money, non-oil activity, and inflation, policymakers should:\n  - account for U.S. monetary developments when setting macroeconomic and financial-stability policies,\n  - continue using reserve requirements, loan-to-deposit ratios, and macroprudential tools to manage domestic liquidity and credit conditions under exchange rate pegs.\n\nMonetary Policy Transmission in the GCC Countries, IMF Working Papers 2012/132\n\n---\n\n Content in this bundle\n\n- wp12132\n  - wp12132 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp12132 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-transmission-in-the-gcc-countries-25934"
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    "Authors: Ananthakrishnan Prasad, Raphael A Espinoza",
    "Published: May 1, 2012",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781475503685.001",
    "The GCC countries maintain a policy of open capital accounts and a pegged (or nearly-pegged) exchange rate, thereby reducing their freedom to run an independent monetary policy.",
    "The pass-through of policy rates to retail rates is on the low side, reflecting the shallowness of money markets and the manner in which GCC central banks operate.",
    "In addition to policy rates, the GCC monetary authorities use reserve requirements, loan-to-deposit ratios, and other macroprudential tools to affect liquidity and credit.",
    "Continued efforts to develop the domestic financial markets will increase interest rate pass-through and strengthen monetary policy transmission.",
    "A panel vector auto regression (panel VAR) model suggests that U.S. monetary policy has a strong and statistically significant impact on:",
    "Unanticipated shocks to broad money:",
    "Open capital accounts combined with a pegged (or nearly-pegged) exchange rate limit the scope for independent domestic monetary policy in the GCC.",
    "Shallow domestic money markets reduce the effectiveness of policy-rate changes in transmitting to retail lending and deposit rates.",
    "The operational practices of GCC central banks contribute to low interest-rate pass-through.",
    "Central bank policy rates (with limited pass-through to retail rates).",
    "Reserve requirements.",
    "Loan-to-deposit ratios.",
    "Other macroprudential tools aimed at managing liquidity and credit conditions.",
    "Deepening domestic financial markets is essential to:",
    "Given the strong external influence of U.S. monetary policy on GCC broad money, non-oil activity, and inflation, policymakers should:",
    "**_wp12132**"
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