What is it about?

Undoubtedly, oil prices play a crucial role in the macroeconomic performances of oil-exporting developing countries. In this regard, the exchange rate is one of the key macroeconomic indicators worthy of investigation. Existing literature shows that world oil prices play an important role in the appreciation of the exchange rates of oil-exporting developing countries. However, only a few studies have examined this issue by considering all three oil-exporting countries of the Commonwealth Independent States, namely Azerbaijan, Kazakhstan and Russia, together. In order to fill this gap and given the increasing importance of these economies in the world’s energy markets, this paper examines the role of oil prices in the movement of real effective exchange rates of the above-mentioned CIS countries. We applied the autoregressive distributed lag bounds testing method with a small sample bias correction to the data of these countries over the 2004Q1–2013Q4 period. The estimation results indicate that oil prices are certainly a main driver behind real effective exchange rate appreciation in the selected economies. Moreover, estimations show that productivity, to some extent, can also lead to the appreciation.

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Why is it important?

The policy implication of this research is that an appreciation of the real exchange rate is harmful for the exports of non-oil goods and services in these countries. Since oil prices lead to the appreciation mainly through higher domestic prices, which is a result of tremendous public spending, decision-makers should reconsider the prevailing fiscal policy to make it much more counter-cyclical.

Perspectives

There are a number of studies investigating the impact of the oil price on the movement of the real exchange rate in oil-exporting developing economies. Although a few time series studies have examined this topic for the CIS oil exporters separately, we are not aware of a study doing so considering all of these countries together. In order to fill this void, we investigated the role of the oil price in appreciation of the real effective exchange rate of Azerbaijan, Kazakhstan and Russia, which have an increasing importance in the world’s energy market.

Professor Elchin Suleymanov
Baku Engineering University

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This page is a summary of: The Role of Oil Prices in Exchange Rate Movements: The CIS Oil Exporters, Economies, April 2017, MDPI AG, DOI: 10.3390/economies5020013.
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