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Working Paper Series - Real Interest Rates, Bubbles and Monetary Policy in the GCC countries



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Real Interest Rates, Bubbles and Monetary Policy in the GCC countries


Volume : 0

No : 0

ISSN : WPS0912

Publisher : Arab Planning Institute - Kuwait

Author (s) : Elmostafa Bentour &  Weshah Razzak 

Published Date : 1/1/2009


Contents :
The Gulf Cooperation Councilcountries (GCC) include Bahrain,Kuwait,Oman,Qatar,Saudi Arabiaand the UAE. Their monetary policy objective is to stabilize the foreign price,i.e., exchange rate instead of the domestic price level, where the nominalinterest rate is equalized with the US federal fund rate, but theinflation rates are independent. High oil prices and the depreciating US dollarcaused inflation to rise and real interest rates to be persistently negative inthe UAE and Qatar.Asset prices bubbles formed then burst creating large loses. They could havemoderated the effect of, or avoided, the bubble had they floated the currencyand stabilized domestic prices. 

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