Dynamics of oil prices, exchange rates and asset prices in the GCC countries

We analyse the relationship between the oil prices, asset prices, and foreign exchange rates in the selected GCC economies, namely United Arab Emirates (UAE), Qatar, Kuwait and Saudi Arabia. Using a time-varying parameter VAR we study the coherence, conditional volatility and impulse responses of the exchange rates and stock markets to oil price shocks over specific periods and policy regimes. The model is identified using sign-restrictions imposed on the impulse responses over contemporaneous and long horizons. Our results suggest that the impact of oil prices on the exchange rate and asset prices are time dependent. Hence there is a loss in information when using standard linear models that average out effects over time. The response of the exchange rates and asset prices to oil prices weakens and strengthens depending on the regime of the markets. The period following financial crisis uniformly strengthens the relationships between the variables. The responses also vary across the GCC economies, emphasizing the fact that differences exists across these economies although their economic structures increasingly becoming similar