The oil cycle, the Federal Reserve, and the monetary and exchange rate policies of Qatar

Alkhater Khalid Rashid and Basher Syed Abul

MPRA Paper from University Library of Munich, Germany

Abstract: Supporters of the Arab oil-exporting countries’ decades-long fixed exchange rate regime argue that since, oil is traded in United States (US) dollars, pegging to the dollar is optimal. However, the weakening relationship between oil prices and the US economy in terms of the Federal Reserve’s expansionary monetary stance amid soaring oil prices for much of the previous decade has raised questions about the viability of the peg. Using Qatar as a case study, this paper empirically analyzes whether the synchronization pattern of business cycles has recently changed between Qatar and the US. The results of the analysis show a pronounced desynchronization or decoupling of business cycles between Qatar and the US during 2001–2010. Moreover, the dissimilarly of demand shocks between the two countries suggests that the imported monetary policy stance of the Federal Reserve has not been viable for Qatar in recent years. A natural implication of our findings is the need for a truly independent monetary policy oriented towards domestic goals.

Keywords: Oil price; Business cycle synchronization; Counter-cyclical monetary policy; Exchange rate regimes. (search for similar items in EconPapers)
JEL-codes: E32 E61 F44 (search for similar items in EconPapers)
Date: 2015-06-03
New Economics Papers: this item is included in nep-ara, nep-cba, nep-ene, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:65900

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