Determinants of Time-Varying Sensitivity of MENA Countries to Global Shocks: A State Space Approach

Bedri Tas

No 530, Working Papers from Economic Research Forum

Abstract: This paper examines whether the mechanism by which global shocks are transmitted into MENA countries changes over time. Three main questions are investigated by implementing TVC-VAR methodology. 1) Do MENA countries respond differently to global economic shocks? 2) Do the reactions of countries to global economic shocks vary over time? 3) What are the structural factors that determine the sensitivity of a country to global shocks? The responses of countries to shocks, to global GDP and oil price are investigated. The empirical results indicate that the reaction of countries to global shocks differs significantly among MENA countries. Also, the response of an individual country varies over time. Finally, economic factors like the exchange rate regime, monetary policy, transparency of the central bank and institutional quality play significant roles in the reaction of domestic GDP to shocks, to global GDP and oil price. The results of this paper have significant policy implications especially for AGCC countries.

Pages: 25
Date: 2010-01-06, Revised 2010-01-06
New Economics Papers: this item is included in nep-ara and nep-mon
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