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Are there oil currencies? The real exchange rate of oil exporting countries

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Author Info
Maurizio Michael Habib () (European Central Bank, Directorate General International and European Relations, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Margarita Manolova Kalamova () (Social Science Research Center Berlin (WZB), Reichpietschufer 50, D-10178 Berlin, Germany.)
Abstract

This paper investigates whether the real oil price has an impact on the real exchange rates of three main oil-exporting countries: Norway, Russia and Saudi Arabia. We create our measure of the real effective exchange rates for Norway and Saudi Arabia (1980-2006) and for Russia (1995-2006), testing if real oil prices and productivity differentials against 15 OECD countries influence exchange rates. In the case of Russia it is possible to establish a positive long-run relationship between the real oil price and the real exchange rate. However, we find virtually no impact of the real oil price on the real exchange rates of Norway and Saudi Arabia. The diverse exchange rate regimes cannot help in explaining the different empirical results on the impact of oil prices across countries, which instead may be due to other policy responses, namely the accumulation of net foreign assets and their sterilisation, and specific institutional characteristics. JEL Classification: F31, C22.

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Paper provided by European Central Bank in its series Working Paper Series with number 839.

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Length: 39 pages
Date of creation: Dec 2007
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Handle: RePEc:ecb:ecbwps:20070839

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Related research
Keywords: Real exchange rate; oil price; purchasing power parity; terms of trade; oil exporting countries.;

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