The Role of Oil Prices in Exchange Rate Movements: The CIS Oil Exporters

Economies 2017, 5, 13

18 Pages Posted: 24 Apr 2017

See all articles by Hasanov Fakhri

Hasanov Fakhri

Qafqaz University - Center for Socio-Economic Research; George Washington University - Research Program on Forecasting; Institute of Cybernetics - Department of Modeling Socio-Economic Processes

Jeyhun Mikayilov

Azerbaijan State University of Economics (UNEC)

Cihan Bulut

Vistula University - Faculty of Business and International Relations; Qafqaz University

Elchin Suleymanov

Baku Engineering University - Department of Finance

Dr. Fuzuli Aliyev

Baku Engineering University

Date Written: April 20, 2017

Abstract

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. 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.

Keywords: real effective exchange rate; oil price; CIS oil exporters; autoregressive distributed lag bounds testing approach

JEL Classification: F31; F41; C31; P24; Q43

Suggested Citation

Hasanov, Fakhri and Mikayilov, Jeyhun and Bulut, Cihan and Suleymanov, Elchin and Aliyev, Fuzuli, The Role of Oil Prices in Exchange Rate Movements: The CIS Oil Exporters (April 20, 2017). Economies 2017, 5, 13, Available at SSRN: https://ssrn.com/abstract=2955513

Fakhri Hasanov

Qafqaz University - Center for Socio-Economic Research ( email )

Baku Sumgait Road 16th km.
Hasan Aliyev Str. 120
Khirdalan, Baku AZ0101
Azerbaijan
+994 (12) 4482862-66 (Phone)
+994 (12) 4482861,67 (Fax)

HOME PAGE: http://www.qu.edu.az/

George Washington University - Research Program on Forecasting ( email )

1922 F Street, NW
Old Main, Suite 208
Washington, DC 20052
United States
(202) 994-6150 (Phone)
(202) 994-6147 (Fax)

HOME PAGE: http://research.columbian.gwu.edu/cer/research/forecasting

Institute of Cybernetics - Department of Modeling Socio-Economic Processes ( email )

9, F. Agayev Str.
Baku, Az1141
Azerbaijan
(994 12) 5390151 (Phone)
(994 12) 5392633 (Fax)

HOME PAGE: http://www.cyber.az/

Jeyhun Mikayilov

Azerbaijan State University of Economics (UNEC) ( email )

Istiglaliyyat street 6
Baku, AZ Az1001
Azerbaijan

Cihan Bulut

Vistula University - Faculty of Business and International Relations ( email )

Stokłosy 3
Warszawa
Poland

Qafqaz University ( email )

Baku-Sumgait Highway 16-km Khirdalan,
Khirdalan, AZ0101
Azerbaijan

Elchin Suleymanov (Contact Author)

Baku Engineering University - Department of Finance ( email )

Baku Sumgait Road 16th km. Hasan Aliyev Str. 120
Baku, AZ0101
Azerbaijan

HOME PAGE: http://beu.edu.az/en/staff_directory/staff/elsuleymanov

Fuzuli Aliyev

Baku Engineering University ( email )

120 Hasan Aliyev str.
Khirdalan
Baku, Baku AZ0101
Azerbaijan
+994504651228 (Phone)

HOME PAGE: http://beu.edu.az/~faliyev

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