Oil-price shocks and the macro-economy: Does the exchange rate regime matter?
Using a panel Vector Auto-Regression (panel VAR) of nine of the OECD’s major oil-importing countries and Reinhart and Rogoff’s de facto classification of exchange rate regimes, we find support for the hypothesis that flexible exchange regimes better absorb oil-price shocks. The price level, output,...
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| Format: | Conference or Workshop Item |
| Language: | English |
| Published: |
2007
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| Subjects: | |
| Online Access: | http://repo.uum.edu.my/2350/1/Almukhtar_Al-Abri.pdf http://repo.uum.edu.my/2350/ |
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| Summary: | Using a panel Vector Auto-Regression (panel VAR) of nine of the OECD’s major oil-importing countries and Reinhart and Rogoff’s de facto classification of exchange rate regimes, we find support for the hypothesis that flexible exchange regimes better absorb oil-price shocks. The price level,
output, and the real exchange rate exhibit smoother adjustment to their long-run equilibrium when the de facto exchange rate regime was flexible. We also document feedback from the real effective exchange rate and inflation rate to the domestic-currency real oil price shock, supporting the growing notion that oil price shocks are not purely exogenous to developed economies. |
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