Real Exchange Rate, Output and Oil: Case of Four Large Energy Producers

36 Pages Posted: 1 Jul 2009

See all articles by Iikka Korhonen

Iikka Korhonen

Bank of Finland - Institute for Economies in Transition (BOFIT)

Aaron N. Mehrotra

Bank for International Settlements (BIS)

Date Written: June 24, 2009

Abstract

We assess the effects of oil price shocks on real exchange rate and output in four large energy-producing countries: Iran, Kazakhstan, Venezuela, and Russia. We estimate four-variable structural vector autoregressive models using standard long-run restrictions. Not surprisingly, we find that higher real oil prices are associated with higher output. However, we also find that supply shocks are by far the most important driver of real output in all four countries, possibly due to ongoing transition and catching-up. Similarly, oil shocks do not account for a large share of movements in the real exchange rate, although they are clearly more significant for Iran and Venezuela than for the other countries.

Keywords: structural VAR model, oil price, Iran, Kazakhstan, Russia, Venezuela

JEL Classification: E31, E32, F31, Q43

Suggested Citation

Korhonen, Iikka and Mehrotra, Aaron N., Real Exchange Rate, Output and Oil: Case of Four Large Energy Producers (June 24, 2009). BOFIT Discussion Paper No. 6/2009, Available at SSRN: https://ssrn.com/abstract=1428238 or http://dx.doi.org/10.2139/ssrn.1428238

Iikka Korhonen (Contact Author)

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

P.O.Box 160
Helsinki 00101
Finland

Aaron N. Mehrotra

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland