Understanding the Inflationary Process in the GCC Region: the Case of Saudi Arabia and Kuwait
Hesham Alogeel,Maher Hasan +1 more
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TL;DR: This study examines inflation in Saudi Arabia and Kuwait, finding that foreign trading partners' inflation is the primary long-run driver, with exchange rate pass-through and oil prices contributing significantly, while demand and money supply shocks impact inflation in the short run.
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Abstract: This paper investigates the factors that affect inflation in the GCC region by examining the inflationary processes in Saudi Arabia and Kuwait. The paper utilizes a model that accounts for foreign factors affecting inflation, such as trading partners' inflation and exchange rate pass-through effect, as well as domestic influences. The analysis concludes that, in the long run, higher inflation in trading partners' countries is the main driving force for inflation in the two countries, with significant but lower contributions from the exchange rate pass-through effect and oil prices. Demand and money supply shocks affect inflation in the short run.
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Citations
The Oil-Price Threshold Effect on External Balances in Saudi Arabia, Russia, and Canada: Accounting for Geopolitics and Environmental Sustainability
Noha A. Razek,Emilson Silva,Nyakundi M. Michieka +2 more
Commodity Prices and Inflation in the Middle East, North Africa, and Central Asia
Joeseph Crowley
TL;DR: In the Middle East, North Africa, and Central Asia, inflation exhibited a uniform pattern from 1996-2009, influenced by past inflation, US dollar strength, US inflation, and monetary/exchange rate policies, rather than international fuel prices.
References
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TL;DR: In this paper, a microeconomic model of price setting is used to show that lower pass-through is caused by lower perceived persistence of cost changes, suggesting that the low inflation itself has caused the low passthrough, and an economy-wide model consistent with the micromodel is presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways, but can disappear quickly if monetary policy and expectations change.
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Exchange Rate Pass-through into Import Prices
TL;DR: The authors argued that low import price pass-through means that nominal exchange rate fluctuations may lead to lower expenditure-switching effects of domestic monetary policy and as a consequence, monetary policy effectiveness is greater for stimulating the domestic economy.
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Monetary policy and exchange rate pass‐through
Joseph E. Gagnon,Jane E. Ihrig +1 more
TL;DR: This article developed a theoretical model that attributes the change in the rate of pass-through to increased emphasis on inflation stabilization by many central banks and found widespread evidence of a robust and statistically significant link between estimated rates of passthrough and inflation variability.
Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations
TL;DR: In this paper, the role played by distribution costs in shaping the behavior of the real exchange rate during exchange-rate-based stabilizations was studied and it was shown that distribution costs are very large for the average consumer good.
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Modeling exchange rate passthrough after large devaluations
TL;DR: In this paper, the authors developed a model which embodies two complementary forces that account for the large declines in the real exchange rate that occur in the aftermath of large devaluations, namely, sticky nontradable goods prices and the impact of real shocks.
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