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The impact of real oil price on real effective exchange rate: The case of Azerbaijan

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  • Hasanov, Fakhri

Abstract

Using quarterly data from 2000-2007 and applying Error Correction Model and Johansen Co- integration Approaches I estimate the impact of real oil price on the real exchange rate of Azerbaijani manat. Estimation outputs derived from these approaches are very close to each other and indicate that real oil price has statistically significant positive impact on real exchange rate in the long-run. Besides, revealed that relative price as a proxy for productivity has also explanatory power in explaining long-run behavior of real exchange rate. Estimated Error Correction Term indicates that half-life of adjustment toward long-run equilibrium level takes 3-4 quarters. Since findings of this study occur as results of high fiscal expansion my policy suggestions mainly related to Fiscal policy implementations.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33493.

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Date of creation: Jul 2010
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Handle: RePEc:pra:mprapa:33493

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Keywords: Real effective exchange rate; Real oil price; Relative productivity; Azerbaijani manat; Dutch Disease; Oil-exporting Countries; Johansen Co-integration Approach; Error Correction Modeling; Half-life Speed;

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Cited by:
  1. Fakhri, Hasanov & Khudayar, Hasanli, 2011. "Why had the Money Market Approach been irrelevant in explaining inflation in Azerbaijan during the rapid economic growth period?," MPRA Paper 29559, University Library of Munich, Germany.
  2. Jiranyakul, Komain, 2014. "Oil price volatility and real effective exchange rate: the case of Thailand," MPRA Paper 57196, University Library of Munich, Germany.
  3. Hasanov, Fakhri & Huseynov, Fariz, 2013. "Bank credits and non-oil economic growth: Evidence from Azerbaijan," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 597-610.
  4. Sabiroglu, Ilkin M. & Bashirli, Samad, 2012. "Input–output analysis in an oil-rich economy: The case of Azerbaijan," Resources Policy, Elsevier, vol. 37(1), pages 73-80.
  5. Hasanov Fakhri, 2011. "Analyzing price level in a booming economy: the case of Azerbaijan," EERC Working Paper Series 11/02e, EERC Research Network, Russia and CIS.

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