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Sources of Macroeconomic Fluctuations in MENA Countries

Mehmet Balcilar and Kemal Bagzibagli ()

MPRA Paper from University Library of Munich, Germany

Abstract: A close examination of the MENA region economies reveals a number of fundamental sources of macroeconomic fluctuations. These include economic factors such as exchange rate instability, large public debt, current account deficits, and escalation of inflation. The political factors such as government instability, corruption, bureaucracy, and internal conflicts also are major sources of macroeconomic instability. Thus, the sources of macroeconomic fluctuations in these countries are expected to be inhomogeneous. This paper determines sources of macroeconomic fluctuations for 16 MENA economies using a structural VAR model. By imposing long-run restrictions on a VAR model, we identify four structural shocks: nominal demand, relative demand, supply, the world output, and imported input price shocks. Overall, the results show some similarities for the source of macroeconomic fluctuations in these, but also some important differences as well. We find important differences even among countries with similar macroeconomic conditions, such as the oil exporters and oil importers. Although, oil prices and world output are significant sources of macroeconomic fluctuations in oil exporters, in almost all countries they do not have the highest share. There is one clear common finding of the paper: For all countries, the long-run sources of output fluctuations are the real supply and/or real demand shocks. External shocks are secondary for all countries. The sources of short-run and price fluctuations are inhomogeneous and dominant variables are mostly determined by country specific factors.

Keywords: MENA; business cycle; Structural VAR; small open economy macroeconomic model (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 F41 (search for similar items in EconPapers)
Date: 2010-01
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