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Oil Shocks and Kuwait’s Dinar Exchange Rate: the Dutch Disease Effect

Author

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  • Al-mulali, Usama
  • Che Sab, Normee

Abstract

This study investigates the impact of oil prices on the exchange rate in Kuwait which uses the fixed exchange rate regime to the US dollar. Time series data from 1970-2008 covering all the oil shocks are used. In order to achieve the results of this study, the VAR model, the Johansen-Juselius Multivariate Cointegration test and the Granger causality test are implemented. Due to the results we have arrived at, we recommend that Kuwait either maintains its exchange rate regime (pegged to a basket of currencies), or uses a crawling peg regime.

Suggested Citation

  • Al-mulali, Usama & Che Sab, Normee, 2010. "Oil Shocks and Kuwait’s Dinar Exchange Rate: the Dutch Disease Effect," MPRA Paper 26844, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:26844
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    References listed on IDEAS

    as
    1. Neary, Peter, 1988. "Determinants of the Equilibrium Real Exchange Rate," American Economic Review, American Economic Association, vol. 78(1), pages 210-215, March.
    2. repec:zbw:bofitp:2007_007 is not listed on IDEAS
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    4. Budina, Nina & Pang, Gaobo & van Wijnbergen, Sweder, 2007. "Nigeria's growth record : Dutch disease or debt overhang ?," Policy Research Working Paper Series 4256, The World Bank.
    5. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    6. Oomes, Nienke & Kalcheva, Katerina, 2007. "Diagnosing Dutch disease : Does Russia have the symptoms?," BOFIT Discussion Papers 7/2007, Bank of Finland, Institute for Economies in Transition.
    7. Usui, Norio, 1997. "Dutch disease and policy adjustments to the oil boom: a comparative study of Indonesia and Mexico," Resources Policy, Elsevier, vol. 23(4), pages 151-162, December.
    8. Emmanuel K. K. Lartey, 2008. "Capital Inflows, Dutch Disease Effects, and Monetary Policy in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 971-989, November.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    oil shocks; real exchange rate; Kuwait; VAR;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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