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The Impact of Oil-Related Incomeon the Equilibrium Real Exchange Rate in Syria

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  • Jemma Dridi
  • Maher Hasan
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    Abstract

    This paper examines the impact of oil-related income, among other fundamentals, on the equilibrium real effective exchange rate (ERER) in Syria. After reviewing the evolution of the Syrian multiple exchange rate regime since 1960 and assessing alternative measures for the exchange rate, the paper analyzes the impact of oil-related income on the ERER in the context of a behavioral equilibrium exchange rate model. The analysis concludes that ERER appreciates with higher oil-related income, productivity and net foreign assets, but, at odds with the conventional wisdom, depreciates with higher government expenditures given that an increase in expenditures usually translates into higher imports and weaker current account position. In light of the projected real shocks associated with the depletion of oil and the change in other fundamentals in the context of the ongoing transition to a market economy, a more flexible regime would serve Syria better in the future.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/196.

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    Length: 30
    Date of creation: 01 Aug 2008
    Date of revision:
    Handle: RePEc:imf:imfwpa:08/196

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    Keywords: Government expenditures; Real effective exchange rates; Oil production; Oil revenues; Productivity; Current account balances; External shocks; exchange rate; real exchange rate; oil exports; foreign exchange; exchange rates; reer; real effective exchange rate; equilibrium exchange rate; effective exchange rate; net oil exports; market exchange rates; effective exchange rates; real exchange rates; export promotion; exchange earnings; foreign exchange earnings; exchange rate regime; exchange rate developments; exporter; oil export; dollar exchange rate; exchange rate regimes; exchange controls; export receipts; exchange markets; multiple exchange rates; foreign exchange transactions; petroleum exports; official exchange rate; exchange transactions; exporting countries; foreign exchange market; currency depreciation; agricultural exports; nominal exchange rate; multiple exchange rate regime; net oil export; real exchange rate changes; trade surplus; exchange rate need; unification of exchange rates; exchange systems; exchange rate determination; exchange rate misalignment; foreign investment; products exports; commodity exporting countries; private exporter; multiple exchange rate; exchange rate changes; average exchange rate; exchange rate flexibility; capital flows; foreign exchange markets; exports of oil; exchange rate path; trade liberalization; oil-exporting countries;

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    1. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series wp793, William Davidson Institute at the University of Michigan.
    2. Paul Cashin & C John McDermott & Alasdair Scott, 1999. "Booms and slumps in world commodity prices," Reserve Bank of New Zealand Discussion Paper Series G99/8, Reserve Bank of New Zealand.
    3. Morten O. Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2007. "Explaining the Effects of Government Spending Shocks on Consumption and the Real Exchange Rate," Economics Working Papers ECO2007/23, European University Institute.
    4. Ronald MacDonald & Luca Ricci, 2001. "PPP and the Balassa Samuelson Effect: the Role of the Distribution Sector," CESifo Working Paper Series 442, CESifo Group Munich.
    5. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth," IMF Working Papers 06/257, International Monetary Fund.
    6. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August.
    7. Tommaso Monacelli, 1999. "Into the Mussa Puzzle: Monetary Policy Regimes and the Real Exchange Rate in a Small Open Economy," Boston College Working Papers in Economics 437, Boston College Department of Economics, revised 15 Sep 2000.
    8. Gregory, Allan W, 1994. "Testing for Cointegration in Linear Quadratic Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 347-60, July.
    9. Juan Zalduendo, 2006. "Determinants of Venezuela'S Equilibrium Real Exchange Rate," IMF Working Papers 06/74, International Monetary Fund.
    10. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
    11. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    12. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 117-214, January.
    13. Ronald MacDonald & Luca Antonio Ricci, 2001. "PPP and the Balassa Samuelson Effect," IMF Working Papers 01/38, International Monetary Fund.
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    Cited by:
    1. Sosunov, K. & Ushakov, N., 2009. "Determination of the Real Exchange Rate of the Ruble and Assessment of Long-Run Policy of Real Exchange Rate Targeting," Journal of the New Economic Association, New Economic Association, issue 3-4, pages 97-121.
    2. Klaus-Stefan Enders, 2009. "Exchange Rate Assessment for Oil Exporters," IMF Working Papers 09/81, International Monetary Fund.

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