Working Paper Series
Oil Prices and Real Exchange Rate Movements in Oil-Exporting Countries: The Role of Institutions
Abstract: Political and legal institutions affect the extent to
which the real exchange rates of oil-exporting countries co-move with the
oil price. In a simple theoretical model, strong institutions insulate real
exchange rates from oil price volatility by generating a smooth pattern of
fiscal spending over the price cycle. Empirical tests on a panel of 33
oil-exporting countries provide evidence that countries with high
bureaucratic quality and strong and impartial legal systems have real
exchange rates that co-move less with the oil price.
Keywords: Real Exchange Rate; Commodity Price; Institutions; Development; (follow links to similar papers)
JEL-Codes: F31; H11; Q48; (follow links to similar papers)
31 pages, September 23, 2009, Revised October 15, 2010
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