Global and Domestic Shocks on Inflation and Economic Growth and Membership Expansion in the GCC Bloc

42 Pages Posted: 15 Sep 2012

See all articles by Won Joong Kim

Won Joong Kim

Konkuk University - Department of Economics

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Date Written: September 14, 2012

Abstract

Using a modern structural VAR with block exogeneity and identifying restrictions, this paper analyzes: first, the global macroeconomic linkages among the dollar exchange rate, oil price, China’s producer price, U.S.’s export price, EU’s export price and Japan’s export price; and second, the effects of global and country-specific shocks on the industrial production and consumer price indices of selected incumbent GCC member countries -Kuwait, Oman, Saudi Arabia- and the potential member Jordan. It also investigates which individual global/local shocks command more importance in explaining the variations in the economic growth and inflation of each actual and potential GCC members. It finally analyzes the similarities in economic growth and inflation among GCC countries after controlling for different global and country-specific shocks. The results suggest that the overall CPI inflation rates of Kuwait, Oman, Saudi Arabia and Jordan are highly and positively correlated. The economic growth of Jordan shows negative correlations with those of the member countries. If GCC members are to focus only on stabilizing inflation, there is no harm for them to accept Jordan as a new GCC member. If GCC’s objective is, however, not only the stabilization of inflation but also the business cycle synchronization, GCC members should be more caution in accepting Jordan as a new member.

Keywords: GCC membership, structural VAR, block exogeneity, exchange rate, China, export prices, oil price, pass-through, inflation, economic growth

JEL Classification: E3, F4

Suggested Citation

Kim, Won Joong and Hammoudeh, Shawkat M., Global and Domestic Shocks on Inflation and Economic Growth and Membership Expansion in the GCC Bloc (September 14, 2012). Available at SSRN: https://ssrn.com/abstract=2146722 or http://dx.doi.org/10.2139/ssrn.2146722

Won Joong Kim

Konkuk University - Department of Economics ( email )

Seoul
Korea, Republic of (South Korea)

HOME PAGE: http://economic.konkuk.ac.kr

Shawkat M. Hammoudeh (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

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