A Tacit Monetary Policy of the Gulf Countries: Is There a Remittances Channel?

The strong economic ties between the GCC economies and the US are manifested in three ways: currency peg, coupling of monetary policy and the adoption of the US dollar as the trading currency for oil. This paper examines how these dynamics result in misalignment of the US monetary policy with the business cycles of the GCC economies. The study shows how the staggering amount of remittance outflows of the GCC economies plays a stabilizing role as a tacit monetary policy tool. Incorporating remittances in the money demand equation results in a more robust model than otherwise.