Kuwait's macroeeonomic performance in the global context

Abstract EN

The ups and downs of Kuwaits economy since the 1970s are often viewed as driven by two main factors : domestic shocks and oil price shocks.

While these two factors have been visibly important in shaping economic fluctuations and growth in Kuwait, their effects have been conditioned by and combined with influences from other domestic and global factors.

In particular, GDP growth, inflation, interest rates, and equity prices in the rest of the world are likely to have direct or indirect impacts on Kuwait's economy, though little is known about the significance of such effects.

Assessing the role of various factors on the Kuwaits macroeconomic process is important for understanding the trends and fluctuations in the economy and for forecasting and policy analysis.

To this end we use a Global VAR (GVAR) model framework to disentangle the size and speed of the transmission of different global macroeconomic shocks originating from three systemic countries (China, Euro Area, and the US) to Kuwait, as well as looking at the implications of shocks to both global equity and oil markets for the Kuwaiti economy.

Our approach uses a dynamic multi country framework for the analysis of the international transmission.

The framework comprises 28 country/region specific models, These individual models are solved in a global setting where core macroeconomic variables of each economy are related to corresponding foreign variables.

The model has both real and financial variables.

This framework is able to account for various transmission channels, including not only trade relationships but also financial and commodity price linkages.