Appendix I. Variables
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Fischer, Stanley, 2001, “Exchange Rate Regimes: Is the Bipolar View Correct?” Finance and Development, Volume 38 (June), Number 2.
Giavazzi, F., and others, 1988, “The Real Exchange Rate and the Fiscal Aspects of a Natural Resources Discovery,” Oxford Economic Papers No. 40, pp. 427–450.
Jbili, A., and Vitali Kramarenko, 2003, Choosing Exchange Regimes in the Middle East and North Africa (Washington: International Monetary Fund).
Johansen, 1995, Likelihood-based Inference in Cointegrated Vector Autoregressive Models (Oxford, United Kingdom: Oxford University Press).
Khan, M. and J. Ostry, 1991, “Response of the Equilibrium Real Exchange Rate to Real Disturbances in Developing Countries,” IMF Working Paper 91/3 (Washington: International Monetary Fund).
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MacDonald, R., 1995, “Long-run Exchange Rate Modeling: A Survey of Recent Evidence,” Staff Papers, International Monetary Fund, Vol. 42 (September), pp. 437–98.
MacDonald, R. and L. Ricci, 2003, “Estimation of the Equilibrium Real Exchange Rate for South Africa,” IMF Working Paper 03/44 (Washington: International Monetary Fund).
Mongardini, J., 1998, “Estimating Egypt’s Equilibrium Real Exchange Rate,” IMF Working Paper 98/05 (Washington: International Monetary Fund).
Paiva, C., 2001, “Competitiveness and the Equilibrium Exchange Rate in Costa Rica” IMF Working Paper 01/23 (Washington: International Monetary Fund).
Serven, Luis, and Andres Solimano, 1992, “Private Investment and Macroeconomic Adjustment: A Survey,” The World Bank Research Observer, Vol. 7 (1).
Spatafora, N. and E. Stavrev, 2003, “The Equilibrium Real Exchange Rate in a Commodity Exporting Country: The Case of Russia,” IMF Working Paper 03/93 (Washington: International Monetary Fund).
Summers, Lawrence H., 2000, “International Financial Crises: Causes, Prevention, and Cures,” American Economic Review, Papers, and Proceedings, Vol. 90 (May), No. 2, pp. 1–16.
The authors would like to thank Lorenzo Pérez, Tahsin Saadi Sedik, Axel Schimmelpfennig, Ulrich Bartsch, and Ron van Rooden for useful comments and suggestions.
The average daily fluctuation in the rial/dollar rate has been roughly 0.01 percent per day for the past year.
Other factors could include (i) reversion to the mean, following the large depreciation of the 1990s (following civil war and reunification); and (ii) higher government spending out of oil revenues.
Other variables in various studies often include measures of openness of the trade and exchange regime, the net-capital inflows-to-GDP ratio, and the real interest differential with trading partners.
The path of government expenditures as a percentage of GDP would have been expected to be much higher, if expectations of oil production levels were much higher for the outer period and the long run.
The impact of change in productivity on the ERER is similar, from an analytical point of view, to that of the technological progress, or lack of it, identified by Edwards.
The decline in NFA will lead to a deterioration of the ERER (net foreign asset channel based on Milesi-Feretti (2001–02), and Giavazzi and others (1988)).
To address the frequency problem, quarterly data is derived using cubic spline interpolation where quarterly data are not available.
For other commodity exporting countries that have a comparatively more diversified export base, this coefficient can be expected to be smaller. For example, MacDonald and Ricci (2003) reports that, in South Africa, an increase of net foreign assets by 1 percent of GDP is associated with an appreciation of the real exchange rate by 1 percent.
It is assumed that the system estimated in Table I-1 is in equilibrium over the long run.
The inclusion of LNG production does not significantly change the outlook for this period.
Medium- or long-term projections become increasingly problematic given the potential for new discoveries of oil, or alternative resource exploitation (such as natural gas) that would effectively supplant some of the lost oil production and hence lessen the need for rial depreciation.
A relevant example is Hungary, which operated a crawling peg up until 2001, when the central bank moved to inflation targeting. Prior to that shift, the government pushed for devaluation to boost exports, while the central bank favored a tighter peg to lower import prices and maintain control over inflation.
In 1998, for example, the price of crude oil declined by an average of 4 percent per month—which levied a heavy toll on Yemen’s foreign exchange reserves in the face of limited exchange rate flexibility.