The Effect of Oil Price Shocks on Exchange Rate Fluctuations of Selected Persian Gulf States (Application of SVAR Model)

Document Type : Original Article

Authors

1 bank

2 دانشیار اقتصاد و حسابداری دانشگاه آزاد اسلامی واحد تهران مرکزی، تهران، ایران،نویسنده مسئول

3 استادیار اقتصاد و حسابداری دانشگاه آزاد اسلامی واحد تهران مرکزی، تهران، ایران

10.30510/psi.2023.428441.4397

Abstract

It has long been believed that oil prices affect the economy. In this regard, it is important to investigate the effects of oil market shocks on macroeconomic indicators. It helps policymakers understand the complex and case-based relationship between the oil market and economic indicators. The aim of this study was to investigate the effect of oil supply and demand shocks on exchange rates of selected Persian Gulf countries. For this purpose, Saudi Arabia, Kuwait, Iraq and Iran were tested monthly based on the structural autoregressive model (SVAR) for the period 2000-2023. The results showed that the coefficients of oil supply shocks were significant only in Saudi Arabia and were not statistically significant in the three countries studied. Delay coefficients were statistically significant only in the first interval for Saudi Arabia, but not statistically significant for other countries. In the case of total demand shock coefficients, there is no significant effect on exchange rate fluctuations in these countries. In the case of demand shock interruptions, it is statistically meaningless, and only the first interruption is statistically significant for Kuwait.The impact of oil-specific demand shocks on exchange rate fluctuations in Kuwait is significant. In particular, the simultaneous increase in oil-specific demand (over a one-month period) will cause Kuwait's currency to fall in value against the currency basket of its main trading partners. The one-month oil demand shock (interruptions) is statistically meaningless for all countries. These results contradict the usual finding that oil prices affect exchange rates in these countries. Therefore, with the strategy of patience and observation, it may be possible to avoid the negative effects of strong and severe intervention in the foreign exchange market.

Keywords

Political Sociology of Iran
Volume 5, Issue 12
February 2023
Pages 3401-3418

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