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The Effect of Fixed Exchange Rates on Monetary Policy of the GCC Countries

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  • Ashraf Nakibullah

Abstract

The GCC member countries have maintained fixed exchange rates against the US dollar for a long time now. These countries also allow liberal cross-border capital movements. Given these arrangements, they have theoretically given up the monetary independence according to the trilemma stating that countries with fixed exchange rates cannot pursue both domestic monetary independence and free capital mobility. This paper tests trilemma for the GCC member countries excluding Saudi Arabia and the UAE due to the unavailability of the pertinent interest rates data from these countries. Using the most recent quarterly data for the period 2004 to 2015, the general finding is that these countries still have some monetary independence. Results for Qatar indicate that they can maintain a full monetary autonomy if the circumstances make them to do so.

Suggested Citation

  • Ashraf Nakibullah, 2017. "The Effect of Fixed Exchange Rates on Monetary Policy of the GCC Countries," Applied Economics and Finance, Redfame publishing, vol. 4(2), pages 11-19, March.
    • Handle: RePEc:rfa:aefjnl:v:4:y:2017:i:2:p:11-19
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    capital controls; fixed exchange rates; trilemma; bounds testing technique;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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