Money-price relationship in gulf cooperation council (GCC) countries

Starting from 2013, the monetary policy of the gcc countries will be governed by a single central bank. examination of optimal monetary policy in these countries requires the analysis of the differences in monetary dynamics among these countries. this paper investigates the money-price relationship in gcc countries. the paper contributes to the literature by empirically examining the contemporaneous short-run relationship as indicated by economic theory. we propose and implement an alternative test of endogeneity to analyze the contemporaneous short-run relation. we also conduct granger causality tests of dynamic long-run relationship between money and price level to be able to make comparisons between previous studies in the literature. the empirical results indicate that the short-run relationship is identical in all countries but the long-run relationship is significantly different. these results have many policy implication for the monetary union of gcc countries. the central bank of the union should take into account the differences in the dynamic long-run relationship and the monetary dynamics are suitable for the union since the contemporaneous relationship is identical in all countries.