The paper studies the interactions between credit, financial asset prices (namely equity prices), and consumer price inflation for the countries belonging to the Gulf Cooperation Council using quarterly observations from 1998:1 to 2009:4. The stock price is seen to have a positive and significant effect on CPI inflation only in the case of Qatar and Oman. Domestic credit comes out as an important determinant of inflation in the GCC countries. Oil price increases affect inflation positively in Oman and Kuwait and negatively in Saudi Arabia. The findings suggest a varying degree of wealth effect on aggregate demand in these countries. The findings of this study have important policy implications for the challenges of a common monetary policy for the GCC area mandated by the proposed common currency.

The paper studies the interactions between credit, financial asset prices (namely equity prices), and consumer price inflation for the countries belonging to the Gulf Cooperation Council using quarterly observations from 1998:1 to 2009:4. The stock price is seen to have a positive and significant ef...