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Divisia monetary aggregates for the GCC countries

Author

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  • Alkhareif, Ryadh
  • Barnett, William A.
Abstract
This paper builds monthly time-series of Divisia monetary aggregates for the Gulf area for the period of June 2004 to December 2011, using area-wide data. We also offer an "economic stability" indicator for the GCC area by analyzing the dynamics pertaining to certain variables such as the dual price aggregates, aggregate interest rates, and the Divisia aggregate user cost growth rates. Our findings unfold the superiority of the Divisia indexes over the officially published simple-sum monetary aggregates in monitoring the business cycles. There is also direct evidence on higher economic harmonization between GCC countries-- especially in terms of their financial markets and the monetary policy. Monetary policy often uses interest rate rules, when the economy is subject only to technology shocks. In that case, money is nevertheless relevant as an endogenous indicator (Woodford, 2003). Properly weighted monetary aggregates provide critical information to policy makers regarding inside liquidity created by financial intermediaries. In addition, policy rules should include money as well as interest rates, when the economy is subject to monetary shocks as well as technology shocks. The data show narrow aggregates growing while broad aggregates collapsed following the financial crises. This information clearly signals problems with the financial system's ability to create liquidity during the crises.

Suggested Citation

  • Alkhareif, Ryadh & Barnett, William A., 2012. "Divisia monetary aggregates for the GCC countries," MPRA Paper 39539, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:39539
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    References listed on IDEAS

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    Cited by:

    1. William A. Barnett & Biyan Tang, 2016. "Chinese Divisia Monetary Index and GDP Nowcasting," Open Economies Review, Springer, vol. 27(5), pages 825-849, November.
    2. Ryadh M. Alkhareif & William A. Barnett, 2015. "Core Inflation Indicators for Saudi Arabia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(3), pages 257-266, June.
    3. Ryadh M. Alkhareif & William A. Barnett, 2015. "Core Inflation Indicators for Saudi Arabia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(3), pages 257-266.
    4. William A. Barnett & Ryadh M. Alkhareif, 2015. "Modern and Traditional Methods for Measuring Money Supply: The Case of Saudi Arabia," IJFS, MDPI, vol. 3(1), pages 1-7, February.
    5. Israr Ahmad Shah Hashmi & Arshad Ali Bhatti, 2019. "On the monetary measures of global liquidity," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-23, December.

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    More about this item

    Keywords

    Divisia monetary aggregates; GCC countries; index number theory; monetary aggregation;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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