One of the limitations of the existing empirical studies on GCC countries is the differentiation between the response of monetary policy to oil supply disturbances from oil demand shocks. [...] The study shows that the real output reacts positively in the short term to the demand-driven oil shock in almost all the examined countries and deals with the supplementary cost of inflation. [...] By comparing and contrasting the signs of the calculated correlation coefficients of the different output gap measures (Kalman, BP, and HP) with the anticipated signs (Table 1), we can conclude that the Kalman filter gives the best indication of the state of the macroeconomy of the GCC countries. [...] We employ the Monte Carlo simulations to generate the confidence intervals based on the distribution of the estimated coefficients of P-VAR and the standard errors. [...] This is explained by the fact that following the oil supply shock and in the presence of rigidities in product and labor markets (prices and wages), production costs increase, and, at the same time, oil consumption decreases in all demand sectors (industrial, transportation, residential, commercial, and electric power) under the effect of the drop of oil supply.
- Pages
- 26
- Published in
- Egypt
