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Oil Prices and Real Exchange Rate Movements in Oil-Exporting Countries: The Role of Institutions

Johanna Rickne ()

No 810, Working Paper Series from Research Institute of Industrial Economics

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 (search for similar items in EconPapers)
JEL-codes: F31 H11 Q48 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2009-09-23, Revised 2010-10-15
New Economics Papers: this item is included in nep-ara, nep-ene and nep-opm
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