Oil Prices and Real Exchange Rate Movements in Oil-Exporting Countries: The Role of Institutions
Political and legal institutions affect the extent to which the real exchange rates of oil-exporting countries co-move with the oil price. In a simple theoretical model, strong institutions insulate real exchange rates from oil price volatility by generating a smooth pattern of fiscal spending over the price cycle. Empirical tests on a panel of 33 oil-exporting countries provide evidence that countries with high bureaucratic quality and strong and impartial legal systems have real exchange rates that co-move less with the oil price.
|Date of creation:||23 Sep 2009|
|Date of revision:||15 Oct 2010|
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