From dollar peg to basket peg:the experience of Kuwait in view of the GCC monetary unification

Olga Marzovilla and Marco Mele ()

MPRA Paper from University Library of Munich, Germany

Abstract: In May 2007, Kuwait unilaterally abandoned the dollar peg, adopted in 2003 as a first step towards the monetary integration of GCC countries, to return to the previous basket peg system. The decision was motivated by the need to limit the inflationary pressures resulting from prolonged depreciation of the dollar against major currencies. Given the importance the anti-inflationary objective had in this choice, the work focuses on the peculiarities of Kuwait’s economy, justifying and reviewing the price dynamics in the light of re-pegging to the basket, in the belief that its composition has been affected by inflationary trends. To this end, an econometric model "Auto-Regressive Moving Average" is proposed to define the weights of currencies in the basket and the estimate shows that Euro’s has increased during the period, consistent with the goals against inflation. This is a particularly important to the future of the planned monetary union of the GCC countries, given the renewed commitment of Kuwait to be part of it, despite the existence of different exchange rate systems in force in other countries.

Keywords: GCC countries; exchange rate regimes; basket peg; dollar peg; inflation (search for similar items in EconPapers)
JEL-codes: E31 F15 F31 F32 F33 (search for similar items in EconPapers)
Date: 2010-03-18
New Economics Papers: this item is included in nep-ara, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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