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Research Institute of Industrial Economics (IFN) Working Paper Series

No 810:
Oil Prices and Real Exchange Rate Movements in Oil-Exporting Countries: The Role of Institutions

Johanna Rickne ()

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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