The Impact of Oil-Related Income on the Equilibrium Real Exchange Rate in Syria

Author/Editor: Hasan, Maher ; Dridi, Jemma
Publication Date: August 01, 2008
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper examines the impact of oil-related income, among other fundamentals, on the equilibrium real effective exchange rate (ERER) in Syria. After reviewing the evolution of the Syrian multiple exchange rate regime since 1960 and assessing alternative measures for the exchange rate, the paper analyzes the impact of oil-related income on the ERER in the context of a behavioral equilibrium exchange rate model. The analysis concludes that ERER appreciates with higher oil-related income, productivity and net foreign assets, but, at odds with the conventional wisdom, depreciates with higher government expenditures given that an increase in expenditures usually translates into higher imports and weaker current account position. In light of the projected real shocks associated with the depletion of oil and the change in other fundamentals in the context of the ongoing transition to a market economy, a more flexible regime would serve Syria better in the future.
Series: Working Paper No. 08/196
Subject(s): Syrian Arab Republic | Real effective exchange rates | Oil production | Oil revenues | Productivity | Government expenditures | Imports | Current account balances | External shocks | Exchange systems

Author's Keyword(s): Equilibrium real exchange rate | oil-related income | trade openness | government expenditures | Vector Error Correction Model.
Publication Date: August 01, 2008
Format: Paper
Stock No: WPIEA2008196 Pages: 30
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