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Exchange Rate Fluctuations and Output in Oil-Producing Countries

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Author Info

  • Magda E. Kandil
  • Mohsen Bahmani-Oskooee

Abstract

Conventional wisdom states that currency depreciation in oil-producing countries are contractionary because demand effects, limited by the prevalence of oil exports priced in dollars, are more than offset by adverse supply effects. Iran, however, has experienced a rapid increase in non-oil exports in the last decade. Against this background, the paper tests whether the conventional wisdom still applies to Iran and concludes that the emergence of the non-oil export sector has made currency depreciation expansionary. The expansionary effect is particularly evident with respect to anticipated persistent depreciation in the long-run. Notwithstanding the varying effects of exchange rate fluctuations on the demand and supply sides of the economy, managing a flexible exchange rate gradually over time towards achieving stability in the real effective exchange rate may strike the necessary balance.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/113.

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Length: 32
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/113

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Keywords: Exchange rate instability; Oil exporting countries; exchange rate; oil exports; currency depreciation; effective exchange rate; real effective exchange rate; currency appreciation; exchange rate fluctuations; exchange rates; nominal effective exchange rate; export sector; total exports; parallel exchange rate; real exchange rate; exchange rate depreciation; bilateral exchange rate; effective exchange rates; exchange rate movements; exchange rate shocks; dollar exchange rate; export competitiveness; currency devaluation; foreign exchange; exchange rate appreciation; flexible exchange rate; value of exports; foreign exchange policy; exchange rate regimes; trade flows; net exports; exchange rate regime; exchange rate policy; export base; real exchange rates; real effective exchange rates; oil export; exchange policy; market exchange rates; floating exchange rate; market exchange rate; nominal exchange rate; exchange rate increases; nominal bilateral exchange rate; exchange rate system; export proceeds; oil-exporting country; real exports; net export; black market exchange rates; exporting countries; exchange rate flexibility; exporting country; exchange controls; oil exporting; bilateral exchange rates; foreign exchange market;

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References

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  18. Mohsen Bahmani-Oskooee & Souphala Chomsisengphet & Magda Kandil, 2002. "Are devaluations contractionary in Asia?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 25(1), pages 69-82, January.
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Cited by:
  1. Muhammad, Shahbaz & Faridul, Islam & Naveed, Aamir, 2011. "Is devaluation contractionary? empirical evidence for Pakistan," MPRA Paper 32520, University Library of Munich, Germany, revised 01 Aug 2011.
  2. Melhem Sadek & Diallo Abdul Salam & Terraza Michel, 2011. "Hypothesis of Currency Basket Pricing of Crude Oil: An Iranian Perspective," Working Papers 11-13, LAMETA, Universtiy of Montpellier, revised Jun 2011.

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