State of Shocks Synchronization among Members of the GCC

Abstract

This paper examines fluctuations of aggregate supply and demand shocks across the GCC countries. It argues that the world oil price influences aggregate demand and supply of these countries. Thus, in contrast to other studies, a SVAR model is used to identify structural shocks by including the oil price. The aggregate supply and demand shocks are then analyzed. The correlations of supply shocks among the member countries are either negative or low positive. Similarly, the correlations of demand shocks, except few pairs of countries, are also negative and low positive. Thus, shocks are not synchronized. These results are different than the results found in other similar studies probably due to the model specification. The implication of the findings is that the GCC countries would find it difficult to adjust supply and demand shocks if they form their aspired Gulf Monetary Union.