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Oil Shocks and Kuwait’s Dinar Exchange Rate: the Dutch Disease Effect

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  • Al-mulali, Usama
  • Che Sab, Normee

Abstract

This study investigates the impact of oil prices on the exchange rate in Kuwait which uses the fixed exchange rate regime to the US dollar. Time series data from 1970-2008 covering all the oil shocks are used. In order to achieve the results of this study, the VAR model, the Johansen-Juselius Multivariate Cointegration test and the Granger causality test are implemented. Due to the results we have arrived at, we recommend that Kuwait either maintains its exchange rate regime (pegged to a basket of currencies), or uses a crawling peg regime.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26844.

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Date of creation: 12 Oct 2010
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Handle: RePEc:pra:mprapa:26844

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Keywords: oil shocks; real exchange rate; Kuwait; VAR;

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  1. Neary, Peter, 1988. "Determinants of the Equilibrium Real Exchange Rate," American Economic Review, American Economic Association, vol. 78(1), pages 210-15, March.
  2. Budina, Nina & Pang, Gaobo & van Wijnbergen, Sweder, 2007. "Nigeria's growth record : Dutch disease or debt overhang ?," Policy Research Working Paper Series 4256, The World Bank.
  3. Oomes , Nienke & Kalcheva, Katerina, 2007. "Diagnosing Dutch disease: Does Russia have the symptoms?," BOFIT Discussion Papers 7/2007, Bank of Finland, Institute for Economies in Transition.
  4. Christopher Adam & David Bevan, 2004. "Aid, Public Expenditure and Dutch Disease," Development and Comp Systems 0409027, EconWPA.
  5. Usui, Norio, 1997. "Dutch disease and policy adjustments to the oil boom: a comparative study of Indonesia and Mexico," Resources Policy, Elsevier, vol. 23(4), pages 151-162, December.
  6. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
  7. Emmanuel K. K. Lartey, 2008. "Capital Inflows, Dutch Disease Effects, and Monetary Policy in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 971-989, November.
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