Evaluating the Effects of Monetary Policy Shocks on GCC Countries

For the first time, this research assesses monetary policy shock effects on GCC members over the last 17 years using a structural vector autoregressive (SVAR) model baseline. While GCC states peg their currency to the US dollar, the contemporaneous coefficient in the structural model indicates that for GCC countries a monetary policy instrument responds positively to unexpected increases in M2, while a monetary aggregate reacts negatively to interest rate shocks. However, our findings indicate that these countries' interest rate channel is weak. Furthermore, oil price innovation contributes to most output fluctuations in the short horizon, and M2 and Federal Fund Rates shocks are responsible for most output movements in the long horizon.