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

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  • Ghiath Shabsigh
  • Nadeem Ilahi
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    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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    Bibliographic Info

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

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    Length: 16
    Date of creation: 01 Apr 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/96

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    Related research

    Keywords: Oil; Oil revenues; Risk management; Fiscal management; Exchange rate instability;

    This paper has been announced in the following NEP Reports:

    References

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    1. Stefania Fabrizio & Ashoka Mody, 2006. "Can budget institutions counteract political indiscipline?," Economic Policy, CEPR & CES & MSH, vol. 21(48), pages 689-739, October.
    2. Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers 200211, Trinity College Dublin, Department of Economics.
    3. Ugo Fasano-Filho, 2000. "Review of the Experience With Oil Stabilization and Savings Funds in Selected Countries," IMF Working Papers 00/112, International Monetary Fund.
    4. Ernesto Stein & Ernesto Talvi & Alejandro Grisanti, 1998. "Institutional Arrangements and Fiscal Performance: The Latin American Experience," NBER Working Papers 6358, National Bureau of Economic Research, Inc.
    5. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
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    7. Perotti, Roberto & Kontopoulos, Yianos, 2002. "Fragmented fiscal policy," Journal of Public Economics, Elsevier, vol. 86(2), pages 191-222, November.
    8. Alberto Alesina & Ricardo Hausmann & Rudolf Hommes & Ernesto Stein, 1996. "Budget Institutions and Fiscal Performance in Latin America," NBER Working Papers 5586, National Bureau of Economic Research, Inc.
    9. Serven, Luis & Solimano, Andres, 1989. "Private investment and macroeconomic adjustment : an overview," Policy Research Working Paper Series 339, The World Bank.
    10. Serven, Luis & Solimano, Andres, 1992. "Private Investment and Macroeconomic Adjustment: A Survey," World Bank Research Observer, World Bank Group, vol. 7(1), pages 95-114, January.
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    12. M. Nowak & Ketil Hviding & Luca Antonio Ricci, 2004. "Can Higher Reserves Help Reduce Exchange Rate Volatility?," IMF Working Papers 04/189, International Monetary Fund.
    13. repec:fth:prinin:401 is not listed on IDEAS
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    Cited by:
    1. Yelena, Kalyuzhnova, 2011. "The National Fund of the Republic of Kazakhstan (NFRK): From accumulation to stress-test to global future," Energy Policy, Elsevier, vol. 39(10), pages 6650-6657, October.

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