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Oil exporters: in search of an external anchor

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  • Habib, Maurizio Michael
  • Stráský, Jan
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    Abstract

    This paper discusses the choice of an optimal external anchor for oil exporting economies, using optimum currency area criteria and simulations of a simple model of a small open economy pegging to a basket of two currencies. Oil exporting countries - in particular those of the Gulf Cooperation Council - satisfy a number of key optimum currency area criteria to adopt a peg. However, direction of trade and synchronisation of business cycle of oil exporters suggest that there is no single "ideal" external anchor among the major international currencies. Model simulations - parameterised for an oil exporting economy - indicate that a currency basket is generally preferable to a single currency peg, especially when some weight is placed by the policy maker on output stabilisation. Only when inflation becomes the only policy objective and external trade is mostly conducted in one currency that a peg to a single currency becomes optimal. JEL Classification: F31, C30, C51, C61, O24

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    Bibliographic Info

    Paper provided by European Central Bank in its series Working Paper Series with number 0958.

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    Date of creation: Nov 2008
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    Handle: RePEc:ecb:ecbwps:20080958

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    Related research

    Keywords: basket; Exchange Rate Regimes; model simulation; oil exporting countries;

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    Cited by:
    1. Zhang, Zhichao & Shi, Nan & Zhang, Xiaoli, 2011. "China’s new exchange rate regime, optimal basket currency and currency diversification," MPRA Paper 32642, University Library of Munich, Germany.
    2. Marzovilla, Olga, 2010. "Impact of global economic imbalance on migrant workers and economies of the Gulf Cooperation Council," MPRA Paper 24210, University Library of Munich, Germany.
    3. Serhan Cevik & Katerina Teksoz, 2013. "Hitchhiker’s Guide to Inflation in Libya," IMF Working Papers 13/78, International Monetary Fund.
    4. Al-Abri, Almukhtar Saif, 2014. "Optimal exchange rate policy for a small oil-exporting country: A dynamic general equilibrium perspective," Economic Modelling, Elsevier, vol. 36(C), pages 88-98.

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