A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel?

25 Pages Posted: 14 Feb 2015

See all articles by Ali A. Termos

Ali A. Termos

American University of Sharjah

Ismail H. Genc

American University of Sharjah, School of Business Administration, Department of Economics

George Naufal

Texas A&M University; IZA Institute of Labor Economics

Abstract

The strong economic ties between the GCC economies and the U.S. are manifested in three ways: currency peg, coupling of monetary policy, and the adoption of the U.S. dollar as the trading currency for oil. This paper examines how these dynamics result in a misalignment of the U.S. monetary policy with the business cycles of the GCC economies. The study shows how the staggering amount of remittances outflow of the GCC economies plays a stabilizing role as a tacit monetary policy tool. Incorporating remittances in the money demand equation results in a more robust model than otherwise. We further find that the effect of the Federal Funds rate on money demand in these countries diminishes in significance during the period of oil boom between 2002 and 2009. However, the transmission effect of the recession periods in the U.S. into the demand for money in the GCC countries is not statistically significant.

Keywords: remittances, inflation, monetary policy, GCC

JEL Classification: F24, N15

Suggested Citation

Termos, Ali A. and Genc, Ismail H. and Naufal, George Sami, A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel?. Available at SSRN: https://ssrn.com/abstract=2564943 or http://dx.doi.org/10.2139/ssrn.2564943

Ali A. Termos (Contact Author)

American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

Ismail H. Genc

American University of Sharjah, School of Business Administration, Department of Economics ( email )

Sharjah, Sharjah 26666
United Arab Emirates
+971-6-515-2327 (Phone)

HOME PAGE: http://https://www2.aus.edu/facultybios/profile.php?faculty=igenc

George Sami Naufal

Texas A&M University ( email )

Public Policy Research Institute
4476 TAMU
College Station, TX 77843
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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