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Mr. Serhan Cevik
This paper investigates the empirical characteristics of business cycles and the extent of cyclical comovement in the Gulf Cooperation Council (GCC) countries, using various measures of synchronization for non-hydrocarbon GDP and constituents of aggregate demand during the period 1990-2010. By applying the Christiano-Fitzgerald asymmetric band-pass filter and a mean corrected concordance index, the paper identifies the degree of non-hydrocarbon business cycle synchronization?one of the main prerequisites for countries considering to establish a monetary union. The empirical results show low and heterogeneous synchronization in non-hydrocarbon business cycles across the GCC economies, and a decline in the degree of synchronicity in the 2000s, if Kuwait is excluded from the sample, partly because of divergent fiscal policies.
Mr. Serhan Cevik

Front Matter Page Middle East and Central Asia Department Contents Abstract Tables Figures I. Introduction II. An Overview of Economic Developments in the GCC Countries III. Empirical Methodology IV. Estimation Results V. Factors Contributing to Business Cycle Desynchronization VI. Conclusion Data Appendix References T ables 1. Bilateral Correlations of the Cyclical Component of Real Non-Hydrocardbon GDP 2. Bilateral Correlations of the Cyclical Component of Real Government Consumption 3. Bilateral Correlations of the

Mr. Serhan Cevik

the GCC economies, and leads to business cycle desynchronization. Nevertheless, it appears that bilateral correlations of cyclical fluctuations move with changes in bilateral trade intensity. Country pairs that have closer trade linkages tend to have a higher degree of non- hydrocarbon business cycle comovement on average, which is consistent with the empirical evidence from a plethora of studies. 9 On the other hand, the regional financial interlinkages remain limited, in spite of an increase in bilateral asset holdings and the acceleration in cross- border

Mr. Serhan Cevik and Ms. Katerina Teksoz

contemporaneous correlation coefficients of the cyclical components of each national non-hydrocarbon business cycle vis-à-vis others ( Cevik, 2011 ). While the limited level of intra-regional trade and financial integration and variance in the degree of economic diversification contribute to business cycle desynchronization across the region, another important factor is the heterogeneous and diverging fiscal policies. These structural features present a series of challenges, particularly in light of the planned monetary integration, and require a set of common fiscal rules to

Mr. Serhan Cevik and Ms. Katerina Teksoz
This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf Cooperation Council (GCC) countries using a structural vector autoregressive model. The results indicate that the interest rate and bank lending channels are relatively effective in influencing non-hydrocarbon output and consumer prices, while the exchange rate channel does not appear to play an important role as a monetary transmission mechanism because of the pegged exchange rate regimes. The empirical analysis suggests that policy measures and structural reforms - strengthening financial intermediation and facilitating the development of liquid domestic capital markets - would advance the effectiveness of monetary transmission mechanisms in the GCC countries.