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Exchange rate misalignments in energy-exporting countries: Do sovereign wealth funds matter?

Author

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  • Hélène Raymond
  • Dramane Coulibaly
  • Luc Désiré Omgba

Abstract

In recent years, several energy-exporting economies have established sovereign wealth funds (SWFs), which invest part of their resource rents in foreign assets. This paper investigates whether these SWFs can help to reduce the volatility of real exchange rate (RER) misalignments by dampening the transmission of energy prices. Using a database on 24 oil-producing countries, we rely on recent advances in the panel cointegration literature to determine a measure for RER misalignment. Our results show evidence that establishing a SWF is associated with a reduction in the volatility of RER misalignments, with a more pronounced magnitude when the fixedness of the exchange rate regime increases. This finding is robust to various sensitivity analyzes.

Suggested Citation

  • Hélène Raymond & Dramane Coulibaly & Luc Désiré Omgba, 2017. "Exchange rate misalignments in energy-exporting countries: Do sovereign wealth funds matter?," International Economics, CEPII research center, issue 152, pages 124-144.
    • Handle: RePEc:cii:cepiie:2017-q4-152-11
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    Cited by:

    1. Edouard Mien & Michaël Goujon, 2022. "40 Years of Dutch Disease Literature: Lessons for Developing Countries," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 351-383, September.
    2. Daren Conrad & Jaymieon Jagessar, 2018. "Real Exchange Rate Misalignment and Economic Growth: The Case of Trinidad and Tobago," Economies, MDPI, vol. 6(4), pages 1-23, September.
    3. Sohag, Kazi & Hassan, M. Kabir & Kalina, Irina & Mariev, Oleg, 2023. "The relative response of Russian National Wealth Fund to oil demand, supply and risk shocks," Energy Economics, Elsevier, vol. 123(C).
    4. Gouett, Matthew, 2020. "New wealth, New wisdom: Updating the narrative of sovereign wealth fund creation," Resources Policy, Elsevier, vol. 65(C).
    5. Larissa Nawo & Désiré Avom & Kyle McNabb & Luc Nembot, 2019. "Unofficial sovereign wealth funds and duration in power in Africa," WIDER Working Paper Series wp-2019-57, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Oil; Curse; Misalignment; Sovereign wealth funds;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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