Sterilisation and Monetary Control by the GCC Member Countries

22 Pages Posted: 19 Dec 2013

See all articles by M. Kabir Hassan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Ashraf Nakibullah

University of Bahrain - Department of Economics and Finance

Abul Hassan

King Fahd University of Petroleum and Minerals

Date Written: December 2013

Abstract

The prevailing dollar peg of the Gulf Cooperation Council (GCC) countries and the absence of any significant current and capital account restrictions led some to believe that these countries have lost monetary independence. However, the paper presents evidence that interest rates of the GCC countries did not converge to the interest rates of the US implying that the assets of the GCC countries are not perfect substitutes to the US assets. This imperfect asset substitutability has allowed the GCC countries to manoeuvre their monetary policies and the central banks of the GCC countries have had some control over their money growth rates by sterilising the changes in international reserves. Results indicate that the monetary authorities of these countries used domestic credit policy to attain some domestic policy objective while engaging in sterilised foreign exchange intervention. This result implies that the proposed GCC central bank should be able to maintain the monetary independence as a group and can reap the benefit of monetary efficiency of the proposed Gulf Monetary Union.

Suggested Citation

Hassan, M. Kabir and Nakibullah, Ashraf and Hassan, Abul, Sterilisation and Monetary Control by the GCC Member Countries (December 2013). The World Economy, Vol. 36, Issue 12, pp. 1566-1587, 2013, Available at SSRN: https://ssrn.com/abstract=2369603 or http://dx.doi.org/10.1111/twec.12056

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Ashraf Nakibullah

University of Bahrain - Department of Economics and Finance

Sakhir
Bahrain

Abul Hassan

King Fahd University of Petroleum and Minerals ( email )

KFUPM CAMPUS
Dhahran, 31261
Saudi Arabia
00966556103670 (Phone)

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