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Jan Stráský

23 July 2008
In the wake of high and rising oil prices since 2003, the member states of the Gulf Cooperation Council (GCC) have seen dynamic economic development, enhancing their role in the global economy as investors and trade partners. Real GDP growth has been buoyant, with non- oil activity expanding faster than oil GDP. Macroeconomic developments have also been characterised by large fiscal and current account surpluses as a result of rising oil revenues, notwithstanding fiscal expansion and rapid import growth. The most significant macroeconomic challenge faced by GCC countries is rising inflation in an environment in which the contribution of monetary policy to containing inflationary pressure is constrained by the exchange rate regimes. The overall favourable macroeconomic backdrop of recent years has provided GCC countries with an opportunity to tackle long-standing structural challenges, such as the diversification of oil-centred economies and reform of the labour markets. In a global context, apart from developing into a pole of global economic growth, GCC countries - together with other oil-exporting countries - have become a major net supplier of capital in global markets, second only to East Asia. As a result, they have become part of the international policy debate on global imbalances. Furthermore, GCC countries are home to some of the world's largest sovereign wealth funds, which raises several financial stability issues. Their role as trade partners has also increased, with the European Union being the only major region in the world maintaining a significant surplus in bilateral trade with the GCC. GCC countries are also key players in global energy markets in terms of production, exports and the availability of spare capacity. Their role is likely to become even more pivotal in the future as they command vast oil and gas reserves and benefit from relatively low costs in exploiting oil reserves.
JEL Code
F14 : International Economics→Trade→Empirical Studies of Trade
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
N15 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations→Asia including Middle East
O53 : Economic Development, Technological Change, and Growth→Economywide Country Studies→Asia including Middle East
Q40 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Energy→General
F40 : International Economics→Macroeconomic Aspects of International Trade and Finance→General
F30 : International Economics→International Finance→General
Eurosystem Monetary Transmission Network
13 November 2008
This paper discusses the choice of an optimal external anchor for oil exporting economies, using optimum currency area criteria and simulations of a simple model of a small open economy pegging to a basket of two currencies. Oil exporting countries - in particular those of the Gulf Cooperation Council - satisfy a number of key optimum currency area criteria to adopt a peg. However, direction of trade and synchronisation of business cycle of oil exporters suggest that there is no single "ideal" external anchor among the major international currencies. Model simulations - parameterised for an oil exporting economy - indicate that a currency basket is generally preferable to a single currency peg, especially when some weight is placed by the policy maker on output stabilisation. Only when inflation becomes the only policy objective and external trade is mostly conducted in one currency that a peg to a single currency becomes optimal.
JEL Code
F31 : International Economics→International Finance→Foreign Exchange
C30 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→General
C51 : Mathematical and Quantitative Methods→Econometric Modeling→Model Construction and Estimation
C61 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Optimization Techniques, Programming Models, Dynamic Analysis
O24 : Economic Development, Technological Change, and Growth→Development Planning and Policy→Trade Policy, Factor Movement Policy, Foreign Exchange Policy
15 April 2013
This paper studies the determinants of the euro exchange rate during the European sovereign debt crisis, allowing a role for macroeconomic fundamentals, policy actions and the public debate by policy makers. It finds that the euro exchange rate mainly danced to its own tune, with a particularly low explanatory power for macroeconomic fundamentals. Among the few factors that are found to have affected changes in exchanges rate levels are policy actions at the EU level and by the ECB. The findings of the paper also suggest that financial markets might have been less reactive to the public debate by policy makers than previously feared. Still, there are instances where exchange rate volatility was increasing in response to news, such as on days when several politicians from AAA-rated countries went public with negative statements, suggesting that communication by policy makers at times of crisis should be cautious about triggering undesirable financial market reactions.
JEL Code
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E62 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→Fiscal Policy
F31 : International Economics→International Finance→Foreign Exchange
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission
G14 : Financial Economics→General Financial Markets→Information and Market Efficiency, Event Studies, Insider Trading