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