Divisia monetary aggregates for the GCC countries

Ryadh Alkhareif and William Barnett

MPRA Paper from University Library of Munich, Germany

Abstract: This paper builds monthly time-series of Divisia monetary aggregates for the Gulf area for the period of June 2004 to December 2011, using area-wide data. We also offer an "economic stability" indicator for the GCC area by analyzing the dynamics pertaining to certain variables such as the dual price aggregates, aggregate interest rates, and the Divisia aggregate user cost growth rates. Our findings unfold the superiority of the Divisia indexes over the officially published simple-sum monetary aggregates in monitoring the business cycles. There is also direct evidence on higher economic harmonization between GCC countries-- especially in terms of their financial markets and the monetary policy. Monetary policy often uses interest rate rules, when the economy is subject only to technology shocks. In that case, money is nevertheless relevant as an endogenous indicator (Woodford, 2003). Properly weighted monetary aggregates provide critical information to policy makers regarding inside liquidity created by financial intermediaries. In addition, policy rules should include money as well as interest rates, when the economy is subject to monetary shocks as well as technology shocks. The data show narrow aggregates growing while broad aggregates collapsed following the financial crises. This information clearly signals problems with the financial system's ability to create liquidity during the crises.

Keywords: Divisia monetary aggregates; GCC countries; index number theory; monetary aggregation (search for similar items in EconPapers)
JEL-codes: E41 E51 E52 E58 (search for similar items in EconPapers)
Date: 2012-05-18
New Economics Papers: this item is included in nep-ara, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://mpra.ub.uni-muenchen.de/39539/1/MPRA_paper_39539.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/40749/3/MPRA_paper_40749.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/40967/2/MPRA_paper_40967.pdf revised version (application/pdf)

Related works:
Chapter: Divisia Monetary Aggregates for the GCC Countries (2012)
Working Paper: Divisia Monetary Aggregates for the GCC Countries (2012)
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