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Permanent and Temporary Oil Price Shocks, Macroeconomic Policy, and Tradable Non-oil Sector: Case of Azerbaijan, Kazakhstan, and Russia


  • Ramiz Rahmanov

    (Central Bank of Azerbaijan Republic)


This paper examines the economic effects of permanent and temporary oil price shocks in three oil exporting countries (Azerbaijan, Kazakhstan, and Russia) using the five variable (real short-term interest rate, real effective exchange rate, real budget expenditure, real imports, and real tradable non-oil production) VARX model with two exogenous variables which represent the corresponding shocks. The impulse response analysis conducted over the quarterly data from 2003:I to 2015:IV shows that in Azerbaijan, a permanent oil price shock produces a significantly positive effect on all variables but interest rate, while a temporary oil price shock has a significant and positive effect only on imports and exchange rate. For Kazakhstan, the impulse response functions show that a permanent oil price shock significantly and positively affects interest rate, imports, and budget expenditure; a temporary oil price shock has a significantly positive influence on all variables except budget expenditure. In Russia, a permanent oil price shock produces a significantly positive effect on all variables; a temporary oil price shock exerts a significantly positive effect on all variables but interest rate. Contrary to the permanent income hypothesis, the budget expenditure in Russia responds both to the permanent and temporary oil price shocks. Such divergence from the hypothesis can be explained by the specifics of the policy on the oil revenue spending. As regards the presence of the symptoms of the Dutch disease, the results indicate only on one symptom. Thus oil price shocks ultimately lead to appreciation of national currencies but not to a decline in tradable non-oil production.

Suggested Citation

  • Ramiz Rahmanov, 2016. "Permanent and Temporary Oil Price Shocks, Macroeconomic Policy, and Tradable Non-oil Sector: Case of Azerbaijan, Kazakhstan, and Russia," Working Papers 1609, Central Bank of Azerbaijan Republic.
  • Handle: RePEc:aze:wpaper:1609

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    References listed on IDEAS

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    Cited by:

    1. Nijat Guliyev, 2018. "The effects of external shocks on Azerbaijan economy," Working Papers 1802, Central Bank of Azerbaijan Republic.
    2. Fuad Mammadov & Shaig Adigozalov, 2017. "Are fiscal rules helpful in mitigating the impact of oil market fluctuations?," Working Papers 1703, Central Bank of Azerbaijan Republic.

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    More about this item


    permanent oil price shock; temporary oil price shock; macroeconomic policy; non-oil economy; Permanent income hypothesis; Dutch disease; VARX; Azerbaijan; Kazakhstan; Russia;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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