Front Matter Page
WP/19/268
IMF Working Paper
How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries?
by Olumuyiwa S. Adedeji, Yacoub Alatrash, and Divya Kirti
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Front Matter Page
IMF Working Paper
Middle East and Central Asia Department (MCD)
How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries?
Prepared by Olumuyiwa Adedeji, Yacoub Alatrash, and Divya Kirti*
Authorized for distribution by Tim Callen
December 2019
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
Given their pegged exchange rate regimes, Gulf Cooperation Council (GCC) countries usually adjust their policy rates to match shifting U.S. monetary policy. This raises the important question of how changes in U.S. monetary policy affect banks in the GCC. We use bank-level panel data, exploiting variation across banks within countries, to isolate the impact of changing U.S. interest rates on GCC banks funding costs, asset rates, and profitability. We find stronger pass-through from U.S. monetary policy to liability rates than to asset rates and bank profitability, largely reflecting funding structures. In addition, we explore the role of shifts in the quantity of bank liabilities as policy rates change and the role of large banks with relatively stable funding costs to explain these findings.
JEL Classification Numbers: G21, E43
Keywords: Banks, Gulf Corporation, U.S. Monetary Policy, Competition
Authors’ E-Mail Addresses: oadedeji@imf.org; alatrash@uw.edu; dkirti@imf.org
We are grateful to Aidyn Bibolov, Tim Callen, Tokhir Mirzoev, and seminar participants at the IMF for helpful suggestions.