Hasanov, Fakhri (2010): The impact of real oil price on real effective exchange rate: The case of Azerbaijan. Published in: Discussion Papers of DIW Berlin No. DP1041 (July 2010): pp. 128.

PDF
MPRA_paper_33493.pdf Download (306kB)  Preview 
Abstract
Using quarterly data from 20002007 and applying Error Correction Model and Johansen Co integration Approaches I estimate the impact of real oil price on the real exchange rate of Azerbaijani manat. Estimation outputs derived from these approaches are very close to each other and indicate that real oil price has statistically significant positive impact on real exchange rate in the longrun. Besides, revealed that relative price as a proxy for productivity has also explanatory power in explaining longrun behavior of real exchange rate. Estimated Error Correction Term indicates that halflife of adjustment toward longrun equilibrium level takes 34 quarters. Since findings of this study occur as results of high fiscal expansion my policy suggestions mainly related to Fiscal policy implementations.
Item Type:  MPRA Paper 

Original Title:  The impact of real oil price on real effective exchange rate: The case of Azerbaijan 
English Title:  The impact of real oil price on real effective exchange rate: The case of Azerbaijan 
Language:  English 
Keywords:  Real effective exchange rate, Real oil price, Relative productivity, Azerbaijani manat, Dutch Disease, Oilexporting Countries, Johansen Cointegration Approach, Error Correction Modeling, Halflife Speed 
Subjects:  C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models ; Multiple Variables > C32  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models P  Economic Systems > P2  Socialist Systems and Transitional Economies > P24  National Income, Product, and Expenditure ; Money ; Inflation F  International Economics > F4  Macroeconomic Aspects of International Trade and Finance > F41  Open Economy Macroeconomics F  International Economics > F3  International Finance > F31  Foreign Exchange Q  Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4  Energy > Q43  Energy and the Macroeconomy 
Item ID:  33493 
Depositing User:  Fakhri Hasanov 
Date Deposited:  19 Sep 2011 08:31 
Last Modified:  30 Sep 2019 16:24 
References:  Alan, G. (1988). Oil windfalls: Blessing or curse? Oxford University Press, for the World Bank, New York, etc. pp. 357. Algozhina, A. (2006 ). Inflation Consequences of “Dutch Disease in Kazakhstan: The Case of Prudent Fiscal Policy”. AlShehabi, O. and S. Ding (2008). Estimating Equilibrium Exchange Rates for Armenia and Georgia. IMF Working Paper, Middle East and Central Asia Department. Bagirov, S. (2006). Azerbaijan’s oil revenues: ways of reducing the risk of ineffective use. Central European University, Center For Policy Studies, Policy paper. Bewley, R. A. (1979). The Direct Estimation of the Equilibrium Response in a Linear Model. Economics Letters 3 375381. Buiter, W. and D. Purvis (1983). Oil, Disinflation and Export Competitiveness: A Model of the Dutch Disease. National Bureau of Economic Research Working Paper 592 (Cambridge, Mass: NBER). Borko, T. (2007) . The suspicion of Dutch disease in Russia and the ability of the government to counteract” ICEG European Center. Working Paper Nr. 35. Bruno, M. and J. Sachs (1982). Energy and Resource Allocation: A Dynamic Model of the Dutch Disease. Review of Economic Studies, 49 (5), 84559. Cashin, P., L. Céspedes, and R. Sahay (2002). Keynes, Cocoa, and Copper: In Search of Commodity Currencies. IMF Working Paper 02/223 (Washington: International Monetary Fund).Clark, P.B. and MacDonald, R. (1998), “Exchange Rates and Economic Fundamentals: “A Methodological Comparison of BEERs and FEERs” IMF Working Paper No. WP/98/67. Clark, P.B. and R.MacDonald (2000). Filtering the BEER: A Permanent and Transitory Decomposition. IMF Working Paper No. 00/144. Corden, W.M., (1984). Booming Sector and Dutch Disease Economics: Survey and Consolidation. Oxford Economic Papers 36, 359380. Corden, W.M. and J.P.Neary (1982). Booming Sector and DeIndustrialization in a Small Open Economy. Economic Journal 92, 825848. Delechat, C. and M. Gaertner, (2008). Exchange Rate Assessment in a ResourceDependent Economy: The Case of Botswana. IMF Working Paper WP/08/83. Dickey, D. and W.Fuller (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, Vol. 49. Dobrynskaya, V. (2008). The monetary and exchange rate policy of the central bank of Russia under asymmetrical price rigidity. Journal of innovations economics. Edwards, S. (1985). A commodity export boom and the real exchange rate: the moneyinflation link. NBER Working Paper Series, Working Paper No. 1741. Egert, B. (2009). Dutch disease in former Soviet Union: Witchhunting? BOFIT Discussion Papers 4. Egert, B. (2005). Equilibrium exchange rates in Southeastern Europe, Russia, Ukraine and Turkey: Healthy or (Dutch) diseased? BOFIT Discussion Papers 3. Egert, B. and C.S. Leonard (2007). Dutch Disease Scare in Kazakhstan: Is it real? William Davidson Institute Working Paper Number 866. Egert, B. (2005). Equilibrium Exchange Rates in Southeastern Europe, Russia, Ukraine and Turkey: Healthy or (Dutch) Diseased? William Davidson Institute Working Paper. Number 770. Egert, B. and K. Lommatzsch (2004). Equilibrium Exchange Rates in the Transition: The Tradable Price Based Real Appreciation and Estimation Uncertainty. William Davidson Institute Working Paper Number 676. Egert, B. and K. Lommatzsch and A. LahrècheRévil (2007). Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges? William Davidson Institute Working Paper Number 859. Enders, K. and H.Herberg (1983). The Dutch Disease: Causes, Consequences, Cure and Calmatives. Welwirtschaftliches Archiv 119, 3, 4739. Enders, W. (2004). Applied Econometrics Time Series. University of Alabama, second edition. Engle, R.F. and C.W.J. Granger (1987). CoIntegration and Error Correction: Representation, Estimation, and Testing. Econometrica,Vol.55,No.2., pp. 251276. Esanov, A., M. Raiser and W. Buiter (2001). Nature’s blessing or nature’s curse: the political economy of transition in resourcebased economies. European Bank for reconstruction and development, working paper # 66. EViews 5 User’s Guide (2004) Quantitative Micro Software, USA. Faruqee, H. (1995). Longrun determinants of real exchange rate: A stockflow equilibrium approach. IMF Staff papers, Vol. 42, pp. 80107. Fatai, K. and L. Oxley and F.G. Scrimgeour (2003). Modeling and Forecasting the demand for Electricity in New Zealand: A Comparison of Alternative Approaches. The Energy Journal, vol. 24, pp. 75–102. Gahramanov, E. and F. LiangShing (2002). The Dutch Disease in Caspian Region: the Case of Azerbaijan Republic. Economic Studies: Volume 5, 10. Habib, M. and M. Kalamova (December 2007). Are there oil currencies? The real exchange rate of oil exporting countries. European Central Bank, Working Paper Series No 839. Halpern, L. and C. Wyplosz (1997). Equilibrium Exchange Rates in Transition Economies. Staff Papers  International Monetary Fund, Vol. 44, No. 4, pp. 430461. Hasanli, Y. and R. Hasanov (2002). Application of Mathematical Methods in Economic Research. (in Azerbaijani), Baku. Hasanov, F. (2004). Modeling of the interrelation between economic growth and inflation in the Azerbaijan Republic. Economic sciences: theory and practice. Azerbaijan State Economic University. (in Azerbaijani) №34, p. 218226. IMF (2007). The Role of Fiscal Institutions in Managing the Oil Revenue Boom. International Monetary Fund, Washington DC. Issa, R. and R. Lafrance, and J.Murray, (2006). The Turning Black Tide: Energy Prices and the Canadian Dollar. Working Paper 200629, Bank of Canada, Ottawa. JahanParvar, M. and H. Mohammadi (2008). Oil Prices and Real Exchange Rates in OilExporting Countries: A Bounds Testing Approach. Illinois State University, Normal, East Carolina University, 28. Johansen, S. (1995). Likelihoodbased inference in cointegrated vector autoregressive models. Oxford University Press. Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control 12, 231254. Johansen, S. (2002). A small sample correction for the test of cointegrating rank in the vector autoregressive model. Econometrica 70, p. 19291961. Johansen, S. and K.Juselius (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics 52, p.169210. Juselius, K. (2006). The cointegrated VAR model: methodology and applications. Oxford University Press Inc. Kalyuzhnova, Y. and M.Kaser (2006). Prudential Management of Hydrocarbon Revenues. Post Communist Economies. Vol. 18, No. 2. Krause, J. and M. Lücke (2005). Political and economic challenges of resourcebased development in Kazakhstan and Azerbaijan. Institute of Political Science, Kiel University. Koeda, J. and V. Kramarenko (2008). Impact of Government Expenditure on Growth: The Case of Azerbaijan. IMF Working Paper, Middle East and Central Asia Department. Korhonen, I. and T. Juurikkala (2007). Equilibrium exchange rates in oildependent countries. BOFIT Discussion Papers No. 8. Korhonen, I. and T. Juurikkala (2009). Equilibrium Exchange Rates in Oil Exporting Countries. Journal of Economics and Finance 33 (1), p.7179. Koranchelian, T. (2005). The equilibrium real exchange rate in a commodity exporting country: Algeria’s experience. IMF Working Paper 05/135, Washington D.C. Kronenberg, T. (2004).The curse of natural resources in the transition economies. Economics of Transition 12(3). p. 399–426. Kwiatkowski, D. and P.C.B. Phillips, and P. Schmidt and Y. Shin (1992). Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have a Unit Root. Journal of Econometrics, Vol. 54, p.15978. MacDonald, R. (1997). What determines real exchange rates: The long and short of it. IMF Working paper 97/21. Mohammadi, H. and M. JahanParvar (2009). Oil Prices and Exchange Rates in OilExporting Countries: Evidence from TAR and MTAR Models. Illinois State University, Normal, East Carolina University. Muhammad, A. and R. Kashif (2010). Time Series Analysis of Real Effective Exchange Rates on Trade Balance in Pakistan. Journal of Yasar University 18(5) p. 30383044. Narayan, P. K. (2005b). The structure of tourist expenditure in Fiji: evidence from unit root structural break tests. Applied Economics, 37, 1157–61. Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 37, p.19791990. Ollus, S. and S. Barisitz (2007). The Russian NonFuel Sector: Signs of Dutch Disease? Evidence from EU25 Import Competition. BOFIT Online No. 2, Bank of Finland. Oomes, N. and K. Kalcheva (2007). Diagnosing Dutch Disease: Does Russia Have the Symptoms. BOFIT Discussion Paper No 6. OtengAbayie, E. and J. Frimpong (2006). Bounds Testing Approach to Cointegration: An Examination of Foreign Direct Investment Trade and Growth Relationships. American Journal of Applied Sciences 3 (11): 20792085, 2006, p.15469239. Pesaran, H. M. and B. Pesaran (1997). Microfit 4.0. Oxford University Press, Oxford. Pesaran, M. Hashem and Y. Shin (1997). An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. Trinity College, Cambridge, England Department of Applied Economics, University of Cambridge, England First Version. Pesaran, M.H., Y. Shin, and R.J. Smith (2001). Bound Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16:289326. Phillips, P.C.B. and P. Perron (1988). Testing for a Unit Root in Time Series Regression”, Biometrika, Vol. 75, p.33546. Rautava, J. (2002). The role of oil prices and the real exchange rate in Russia’s economy. BOFIT Discussion Papers, No. 3. Reza, Y. and S. Ramkishen (2006). Models of Equilibrium Real Exchange Rates Revisited: A Selective Review of the Literature. Centre for International Economic Studies Discussion Paper No. 0604, University of Adelaide, Australia. Rosenberg, C.B. and T.O. Saavalainen (1998). How to Deal with Azerbaijan’s Oil Boom? Policy Strategies in a ResourceRich Transition Economy. IMF Working Paper 98/6. Sachs, J.D. and A.M. Warner (1997). Natural Resource Abundance And Economic Growth. Center for International Development and Harvard Institute for International Development .Harvard University Cambridge MA. Stein, J.L. (1999). The evolution of the real value of the U.S.Dollar relative to the G7 currencies. Chapter 3 in Ronald MacDonald and J.L.Stein (eds.), Equilibrium exchange rates, Kluwer Academic Publishers, London, U.K. Sturm, M. and G. François and G. Juan (2009). Fiscal policy challenges in oilexporting countries a review of key issues. European central bank, occasional paper series no 104. WakemanLinn and P. Mathieu and B. Selm (2002). Oil funds and revenue management in transition economies: the cases of Azerbaijan and Kazakhstan. Wijnbergen, S.V. (1984). Inflation, Employment, and the Dutch Disease in OilExporting Countries: A ShortRun Disequilibrium Analysis. The Quarterly Journal of Economics, Vol. 99, No. 2 pp. 233250. Zalduendo, J. (2006). Determinants of Venezuela’s equilibrium real exchange rate. IMF Working Paper 06/74, Washington D.C. Zavarce, H. and L.A. Sosa (2003). Inconsistency of Policies and Oil Shocks: Dynamics According to the Monetary Regime. Central Bank of Venezuela. 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/33493 