Title: GCC countries and the nexus between exchange rate and oil price: What wavelet decomposition reveals?

Authors: Jamal Bouoiyour; Refk Selmi

Addresses: CATT-UPPA, Avenue du Doyen Poplawski BP 1633, 64016 Pau, Cédex, France ' ESC, University of Manouba, 2010, Tunisia

Abstract: We employ wavelet decomposition and nonlinear causality test to investigate the nexus between the real oil price and the real effective exchange rate in three GCC countries: Qatar, Saudi Arabia and UAE. We find strong evidence in favour of a feedback hypothesis in Qatar and UAE and of a neutrality hypothesis in Saudi Arabia. The first observation outcome means that Qatar and UAE should reinforce the downward effect of oil price on real exchange rate by improving diversification policy. The second one implies that the behaviour of Saudi Arabia as a price taker may allow it to maintain a quick recovery under oil shocks.

Keywords: real oil prices; real effective exchange rates; wavelets; nonlinear causality; GCC; Gulf Cooperation Countries; wavelet decomposition; Qatar; Saudi Arabia; UAE; United Arab Emirates; diversification policy; oil shocks.

DOI: 10.1504/IJCEE.2015.066203

International Journal of Computational Economics and Econometrics, 2015 Vol.5 No.1, pp.55 - 70

Received: 23 Feb 2013
Accepted: 07 Sep 2013

Published online: 08 Dec 2014 *

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