Determinants of Inflation in GCC

Hanan Morsy and Magda ElSayed Kandil

No 09/82, IMF Working Papers from International Monetary Fund

Abstract: Inflationary pressures have heightened in the oil-rich Gulf Cooperation Council (GCC) since 2003. This paper studies determinants of inflation in GCC, using an empirical model that includes domestic and external factors. Inflation in major trading partners appears to be the most relevant foreign factor. In addition, oil revenues have reinforced inflationary pressures through growth of credit and aggregate spending. In the short-run, binding capacity constraints also explain higher inflation given increased government spending. Nonetheless, by targeting supply-side bottlenecks, the increase in government spending is easing capacity constraints and will ultimately help to moderate price inflation.

Keywords: Inflation; Cooperation Council for the Arab States of the Gulf; External shocks; Domestic liquidity; Monetary policy; Currency pegs; Exchange rate depreciation; Economic models; Cross country analysis (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: Written
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