Eisa Aleisa

This paper examines the impacts of external shocks on the countries of the Gulf Cooperation Council’s (GCC) prospective monetary union, while focusing on the optimal choice of the exchange rate regime. The results show that output movements in the GCC as a single bloc are driven in the shortand long-run mostly by domestic shocks and by terms of trade in the long run as well. Shocks coming from both the US dollar and the euro zones have small impacts. These results and the weak correlations with those two zones suggest that GCC bloc should peg to a basket of currencies as a transitory step on the way toward a more flexible exchange rate regime. a Middle East and Central Asia Dept. (MCD), International Monetary Fund, Washington, DC 20431. Phone: 202 623 6057, Fax: 202 623 4072, e-mail: ealeisa@imf.org. b Lebow College of Business, Drexel University, Philadelphia, PA 19104. Phone: 215 895 6673, Fax: 215 895 6975, e-mail: hammousm@drexel.edu Key word: Shocks; variance decomposition; imp...

Using a structural cointegrated VAR, this study examines the impacts of external shocks originating from the dollar, euro and yen zones as well as the regional shocks on the oilrich countries of the Gulf Cooperation Council (GCC), viewed as a prospective monetary union. It focuses on the implications of shock impacts for selecting an apposite common exchange rate regime. The SVECM variance decomposition and impulse response analyses strongly underscore the relative impacts of the two external shocks over the regional ones. The findings imply that the world’s three major currencies should figure highly in the GCC’s common basket of currencies. Accordingly, a transitional movement to a more flexible exchange rate may be desirable for these trade-dependent economies in the long run, as argued in the optimal currency literature for developing countries.

The paper investigates the sources of real exchange rate movements in Saudi Arabia by decomposing real exchange rate movements into those attributable to real and nominal shocks. Using a popular structural VAR model and assuming long-run neutrality of nominal shocks, we find that real shocks play a significant role in explaining real exchange rate movements in Saudi Arabia. Using a more disaggregated model, we also find that oil production shocks rather than real oil price shocks are responsible for real exchange rate movements. In order to stabilize the real exchange rate, Saudi Arabia should focus on stabilizing oil production. (JEL F3, C5)

This paper examines the impacts of external shocks on the countries of the Gulf Cooperation Council’s (GCC) prospective monetary union, while focusing on the optimal choice of the exchange rate regime. The results show that output movements in the GCC as a single bloc are driven in the shortand long-run mostly by domestic shocks and by terms of trade in the long run as well. Shocks coming from both the US dollar and the euro zones have small impacts. These results and the weak correlations with those two zones suggest that GCC bloc should peg to a basket of currencies as a transitory step on the way toward a more flexible exchange rate regime. a Middle East and Central Asia Dept. (MCD), International Monetary Fund, Washington, DC 20431. Phone: 202 623 6057, Fax: 202 623 4072, e-mail: ealeisa@imf.org. b Lebow College of Business, Drexel University, Philadelphia, PA 19104. Phone: 215 895 6673, Fax: 215 895 6975, e-mail: hammousm@drexel.edu Key word: Shocks; variance decomposition; imp...

Presentation of the articles in the Topics in Middle Eastern and North African Economies was made possible by a limited license granted to Loyola University Chicago and Middle East Economics Association from the authors who have retained all copyrights in the articles.

The primary objective of this study is to assess the optimality of a currency area in the six Gulf countries. To evaluate this important strategic it is crucial to investigate the sources of macroeconomic fluctuations in the Gulf Cooperation Council (GCC) area. These countries are Saudi Arabia, Bahrain, Qatar, Kuwait, and United Arab Emirates. These countries share many economic and political characteristics, which are conducive to a monetary union. Moreover, these countries have existing cooperation schemes that make a monetary union feasible. This paper focuses on the symmetry of underling macroeconomic shocks. Using a macroeconomic model and structural VAR models constructed to suit the GCC economies for the 1980-2000 period, we identify terms of trade shocks, trade balance shocks, supply shocks, balance of payments shocks, aggregate demand shocks and monetary shocks. The results show that the macroeconomic structure is largely similar in the GCC economies. In that sense there ar...

Using a structural cointegrated VAR, this study examines the impacts of external shocks originating from the dollar, euro and yen zones as well as the regional shocks on the oil-rich countries of the Gulf Cooperation Council (GCC), viewed as a prospective monetary union. It focuses on the implications of shock impacts for selecting an apposite common exchange rate regime. The SVECM variance decomposition and impulse response analyses strongly underscore the relative impacts of the two external shocks over the regional ones. The findings imply that the world’s three major currencies should figure highly in the GCC’s common basket of currencies. Accordingly, a transitional movement to a more flexible exchange rate may be desirable for these trade-dependent economies in the long run, as argued in the optimal currency literature for developing countries.

... The trading day effect is weak for all GCC markets and oil futures prices but remains consistent with findings for the US stock market. ... File URL: http://www.blackwell-synergy.com/doi/abs/10.1093/ cep/byh018 File Format: text/html File Function: link to full text Download Restriction ...

ABSTRACT Using a structural vector autoregression (SVAR) with block exogeneity, this study examines the impacts of external shocks originating from the United States, the European Union, Japan, and the oil market as well as those of the regional shocks, on the oil‐rich countries of the Gulf Cooperation Council (GCC), viewed as a prospective monetary union. It takes into account the implications of the shock impacts for selecting an appropriate common exchange rate arrangement. The SVAR variance decomposition and impulse response analyses strongly underscore the relative impacts of the global shocks over the regional ones. The findings imply that the world's two major currencies, the U.S. dollar and the euro, should figure highly in a GCC's common basket of currencies. Accordingly, a transitional movement to a more flexible exchange rate arrangement such as a basket peg may be desirable for these trade‐dependent economies in the long run, as is argued in the optimal currency literature for developing countries.

... The trading day effect is weak for all GCC markets and oil futures prices but remains consistent with findings for the US stock market. ... File URL: http://www.blackwell-synergy.com/doi/abs/10.1093/ cep/byh018 File Format: text/html File Function: link to full text Download Restriction ...