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The effects of external shocks on Azerbaijan economy

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  • Nijat Guliyev

    () (Central Bank of Azerbaijan Republic)

Abstract

This paper examines the effects of external shocks on the economy of oil rich Azerbaijan. Using oil price and macroeconomic indicators of three major trade partners of Azerbaijan – EU, Russia, and Turkey - as the external shock variables, we analyze the effects of those shocks on the domestic macroeconomic variables of Azerbaijan during the period from 2000Q1 to 2017Q4, in the SVAR framework with block exogeneity restriction. The results show that the overall importance of the four groups of shocks, in descending terms, is in the following order: oil shock, EU origin shocks, Russia origin shocks, and Turkey origin shocks. The major findings of the paper are: a) among considered foreign shocks oil price shock is the most important foreign shock for the economy of Azerbaijan; b) in general EU origin shocks has larger impact on considered domestic variables compared to other trade partners origin shocks; c) Turkey origin shocks have almost no impact in any of the considered domestic variables of Azerbaijan, d) among considered external shocks oil price is the main determinant of the non-oil sector of economy, and e) among considered external shocks GDP growth of the trade partners is the main determinant of the inflation in Azerbaijan.

Suggested Citation

  • Nijat Guliyev, 2018. "The effects of external shocks on Azerbaijan economy," Working Papers 1802, Central Bank of Azerbaijan Republic.
  • Handle: RePEc:aze:wpaper:1802
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    References listed on IDEAS

    as
    1. Hasanov, Fakhri, 2010. "The impact of real oil price on real effective exchange rate: The case of Azerbaijan," MPRA Paper 33493, University Library of Munich, Germany.
    2. Vincent Brémond & Emmanuel Hache & Marc Joëts, 2014. "On the link between oil and commodity prices: A panel VAR approach," Post-Print hal-01410606, HAL.
    3. Gustavo Adler & Camilo E Tovar Mora, 2012. "Riding Global Financial Waves; The Economic Impact of Global Financial Shocks on Emerging Market Economies," IMF Working Papers 12/188, International Monetary Fund.
    4. 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.
    5. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    6. Lutz Kilian & Robert J. Vigfusson, 2017. "The Role of Oil Price Shocks in Causing U.S. Recessions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(8), pages 1747-1776, December.
    7. Tural Karimli & Nigar Jafarova & Heyran Aliyeva & Salman Huseynov, 2016. "Oil Price Pass-Through into Inflation: The Evidence from Oil Exporting Countries," IHEID Working Papers 01-2016, Economics Section, The Graduate Institute of International Studies.
    8. Vugar Rahimov & Shaig Adigozalov & Fuad Mammadov, 2016. "Determinants of Inflation in Azerbaijan," Working Papers 1607, Central Bank of Azerbaijan Republic.
    9. Nombulelo Braiton, 2008. "Pass-Through of External Shocks to Inflation in Sri Lanka," IMF Working Papers 08/78, International Monetary Fund.
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    More about this item

    Keywords

    VAR; non-oil GDP; CPI inflation; oil price; external shock;

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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