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

12 Pages Posted: 15 Apr 2016

See all articles by Ali Termos

Ali Termos

American University of Beirut

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

Date Written: May 2016

Abstract

The strong economic ties between the Gulf Cooperation Council (GCC) economies and the USA are manifested in three ways: currency peg, coupling of monetary policy, and the adoption of the US dollar as the trading currency for oil. This paper examines how these dynamics result in a misalignment of the US 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 USA into the demand for money in the GCC countries is not statistically significant.

Suggested Citation

Termos, Ali2016 and Genc, Ismail H. and Naufal, George Sami, A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel? (May 2016). Review of Development Economics, Vol. 20, Issue 2, pp. 599-610, 2016, Available at SSRN: https://ssrn.com/abstract=2765221 or http://dx.doi.org/10.1111/rode.12249

Ali2016 Termos (Contact Author)

American University of Beirut ( email )

Beirut, 0236
Lebanon

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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