Increased economic and financial interconnectedness has amplified the focus on inflation spillovers globally. This study aims to empirically investigate the symmetric and asymmetric transmission of inflation shocks among Gulf Cooperation Council (GCC) countries between January 2010 and November 2024.
This paper uses a time-varying parameter vector autoregressive (TVP-VAR) model and account for asymmetric dynamic connectedness by explicitly considering the transmission of positive and negative inflation shocks.
The analysis reveals considerable time variation in inflation spillovers across the GCC region. Moreover, there is evidence of significant disparities in connectedness arising from positive and negative inflation shocks, with negative shocks demonstrating a more pronounced spillover effect. The connectedness has been particularly driven by negative shocks during 2010, 2014–2018 and 2020–2024, corresponding with the subprime crisis, COVID-19 pandemic and the Russo–Ukrainian conflict. The analysis also suggests that inflation in various countries shifts roles over time, acting as either a net transmitter or a net receiver of inflationary shocks. Overall, the findings underscore significant asymmetries in inflation transmission across GCC nations, highlighting the importance of differentiating the impacts of positive and negative inflation shocks in future analyses and policy considerations.
To the best of the authors’ knowledge, this research is the first empirical study to examine how inflation spreads among GCC countries. It also accounts for asymmetry by investigating the transmission of positive and negative inflation shocks.
