Real Interest Rates, Bubbles and Monetary Policy in the GCC countries

El Mostafa Bentour and Weshah Razzak

EERI Research Paper Series from Economics and Econometrics Research Institute (EERI), Brussels

Abstract: The Gulf Cooperation Council countries (GCC) include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Their monetary policy objective is to stabilize the foreign price, i.e., exchange rate instead of the domestic price level, where the nominal interest rate is equalized with the US federal fund rate, but the inflation rates are independent. High oil prices and the depreciating US dollar caused inflation to rise and real interest rates to be persistently negative in the UAE and Qatar. Asset prices bubbles formed then burst creating large loses. They could have moderated the effect of, or avoided, the bubble had they floated the currency and stabilized domestic prices.

Keywords: Inflation; real interest rate; bubbles. (search for similar items in EconPapers)
JEL-codes: E31 E37 E58 (search for similar items in EconPapers)
Date: 2010-01-03
New Economics Papers: this item is included in nep-ara, nep-cba, nep-mac and nep-mon
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http://www.eeri.eu/documents/wp/EERI_RP_2010_03.pdf (application/pdf)

Related works:
Working Paper: Real Interest Rates, Bubbles and Monetary Policy in the GCC countries (2009)
Working Paper: Real Interest Rates, Bubbles and Monetary Policy in the GCC countries
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