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Are fiscal rules helpful in mitigating the impact of oil market fluctuations?

Author

Listed:
  • Fuad Mammadov

    () (Central Bank of Azerbaijan Republic)

  • Shaig Adigozalov

    () (Central Bank of Azerbaijan Republic)

Abstract

In this paper we empirically examined the role of fiscal rules in mitigating the impact of oil market fluctuations in resource-rich economies using a structural panel VAR framework following Pedroni (2013) and incorporating identification scheme of Kilian (2009). Our key findings can be summarized as: l) oil exporting developing countries exhibit procyclical respond to positive oil market specific demand shock, 2) there are significant cross-country differences in the way governments respond to the oil market shocks, 3) fiscal rules mitigate the shocks and generate fiscal discipline only if when all fiscal rules are imposed simultaneously, 4) we couldn’t identify any significant role of wealth funds as a budget stabilization policy.

Suggested Citation

  • 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.
  • Handle: RePEc:aze:wpaper:1703
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    References listed on IDEAS

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    1. Concha Verdugo Yepes & Peter L. Pedroni & Xingwei Hu, 2015. "Crime and the Economy in Mexican States; Heterogeneous Panel Estimates (1993-2012)," IMF Working Papers 15/121, International Monetary Fund.
    2. Elva Bova & Nathalie Carcenac & Martine Guerguil, 2014. "Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World," IMF Working Papers 14/122, International Monetary Fund.
    3. Salman Huseynov & Vugar Ahmadov, 2014. "Business Cycles in Oil Exporting Countries: A Declining Role for Oil?," IHEID Working Papers 03-2014, Economics Section, The Graduate Institute of International Studies.
    4. Nese Erbil, 2011. "Is Fiscal Policy Procyclical in Developing Oil-Producing Countries?," IMF Working Papers 11/171, International Monetary Fund.
    5. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    6. Hem C. Basnet & Kamal P. Upadhyaya, 2015. "Impact of oil price shocks on output, inflation and the real exchange rate: evidence from selected ASEAN countries," Applied Economics, Taylor & Francis Journals, vol. 47(29), pages 3078-3091, June.
    7. Robert B. Barsky & Lutz Kilian, 2002. "Do We Really Know that Oil Caused the Great Stagflation? A Monetary Alternative," NBER Chapters,in: NBER Macroeconomics Annual 2001, Volume 16, pages 137-198 National Bureau of Economic Research, Inc.
    8. Karim Barhoumi & Reda Cherif & Nooman Rebei, 2016. "Stochastic Trends, Debt Sustainability and Fiscal Policy," IMF Working Papers 16/59, International Monetary Fund.
    9. 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.
    10. Joseph Ayoola Omojolaibi & Festus O. Egwaikhide, 2014. "Oil price volatility, fiscal policy and economic growth: a panel vector autoregressive (PVAR) analysis of some selected oil-exporting African countries," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(2), pages 127-148, June.
    11. Michael Sturm & François Gurtner & Juan Gonzalez Alegre, 2009. "Fiscal policy challenges in oil-exporting countries – a review of key issues," Occasional Paper Series 104, European Central Bank.
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    More about this item

    Keywords

    Fiscal rule; structural panel VAR; oil shocks;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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