Internal and external determinants of inflation in GCC countries : evidence from a panel PMG-ARDL model

The inflation rate has shown an upward trend globally, specifically after COVID-19, and the economies of the Gulf Cooperation Council (GCC) are not an exception. A heightened inflation in the modern globalized world is indeed undesirable due to its enormous adverse consequences on all sectors of the economy. However, the true determinants of the inflation rate, particularly in the case of GCC economies, are not well-explored. Accordingly, this research paper attempts to see whether the inflation rate in GCC economies is driven by internal factors or global factors. This paper focuses on data for the period 1998 to 2023 and applies the PMG-ARDL methodology for the estimation. The results confirmed that money supply, oil prices, GDP, and global supply chain pressure are the key inflationary drivers in the long run. In contrast, trade openness has reduced the inflation rate in the long run, which is consistent with the prediction of Romer's hypothesis. In the short run, we found that real GDP and trade openness are the main driving forces behind the heightened inflation rate. Furthermore, the causality findings indicated several unidirectional and bidirectional relationships among the variables under consideration. Our results are robust to alternative econometric estimators and hence offer valuable policy implications for the consideration of policymakers.