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Looking Beyond the Fiscal: Do Oil Funds Bring Macreconomic Stability?

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Author Info
Nadeem Ilahi
Ghiath Shabsigh
Abstract

Oil funds have become increasingly popular in oil exporting countries during the recent surge in oil prices. However, the literature on the contribution is small, tends to focus narrowly on their fiscal benefits, and concludes that they are redundant of such funds-in other words, that well designed fiscal management and policy are adequate substitutes for oil funds. This paper argues that a broader focus is needed in judging the effectiveness of such funds. We test whether oil funds help reduce macroeconomic volatility. The econometric estimation results from a 30-year panel data set of 15 countries with and without oil funds suggest that oil funds are associated with reduced volatility of broad money and prices and lower inflation. However, there is a statistically weak negative association between the presence of an oil fund and volatility of the real exchange rate.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/96.

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Length: 18 pages
Date of creation: 24 Apr 2007
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Handle: RePEc:imf:imfwpa:07/96

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  2. Stefania Fabrizio & Ashoka Mody, 2006. "Can budget institutions counteract political indiscipline?," Economic Policy, CEPR, CES, MSH, vol. 21(48), pages 689-739, October. [Downloadable!] (restricted)
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  3. Serven, Luis & Solimano, Andres, 1992. "Private Investment and Macroeconomic Adjustment: A Survey," World Bank Research Observer, Oxford University Press, vol. 7(1), pages 95-114, January.
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  8. Ketil Hviding & M. Nowak & Luca Antonio Ricci, 2004. "Can Higher Reserves Help Reduce Exchange Rate Volatility?," IMF Working Papers 04/189, International Monetary Fund. [Downloadable!]
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  10. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November. [Downloadable!] (restricted)
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  13. repec:fth:prinin:401 is not listed on IDEAS
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