A Monetary Union for the GCC

Abstract

In this paper, we examine the impact of monetary policy in the GCC on major macroeconomic outcomes as well as dependence of monetary policy within the GCC. We then employ Structural Vector Autoregression methodology to capture dynamics as well as estimate both short and long-run impact of monetary policy shocks within the GCC. We extend this analysis by having a closer look into monetary policy dependence between two largest GCC economies: United Arab Emirates and Saudi Arabia. The results of our Structural Vector Autoregression estimates imply that monetary policy plays a key role and impacts GDP per capita and investments both in the short and long-run. Nevertheless, the impact of monetary policy on each other"s economyis somewhat limited.