How Oil Price Drops are Reflected by Imported Inflation in Azerbaijan?

Nazim Hajiyev and Ali Rustamov
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Nazim Hajiyev: Department of Economics and Business Management, Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan, Visiting Scholar, Davis Center for Russian and Eurasian Studies, Harvard University, USA,
Ali Rustamov: Department of Economics and Business Management, Ph.D. Candidate in the Institute for Scientific Research on Economic Reforms (ISRER), Azerbaijan.

International Journal of Energy Economics and Policy, 2019, vol. 9, issue 2, 182-193

Abstract: Oil price shocks are generally seen as a major factor affecting the macroeconomic situation of the country, especially oil exporting countries such as Azerbaijan. While some authors have stated the direct channels of transmission of energy price shocks, other authors have considered the more of an indirect transmission of oil prices effects to the major macroeconomic variables. In this paper a cointegrated vector autoregressive model, vector error correction model model has been considered for Azerbaijan in order to study the response of inflation to oil price shocks. Empirical analysis shows that, for Azerbaijan there seems to be a statistical significant short-run relationship of unexpected oil price shocks on inflation rate that supported to reveal the imported inflation in Azerbaijan. Besides, there have been found a long run relationship running from exports, exchange rate, money supply, imports to the inflation in Azerbaijan as well. In conclusion, decreases in oil prices are transmitted to high imported inflation by lowering the value of domestic exchange rate and increasing the value of imports.

Keywords: Imported Inflation; Oil Price Shocks; Exchange Rate; Vector Error Correction Model; Money Supply; Exports (search for similar items in EconPapers)
JEL-codes: C58 E31 E43 E51 F31 O24 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eco:journ2:2019-02-21

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