Looking Beyond the Fiscal: Do Oil Funds Bring Macroeconomic Stability?

Author/Editor:

Ghiath Shabsigh ; Nadeem Ilahi

Publication Date:

April 1, 2007

Electronic Access:

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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:

Oil funds have become increasingly popular in oil exporting countries during the recent surge in oil prices. However, the literature on the contribution is small, tends to focus narrowly on their fiscal benefits, and concludes that they are redundant of such funds-in other words, that well designed fiscal management and policy are adequate substitutes for oil funds. This paper argues that a broader focus is needed in judging the effectiveness of such funds. We test whether oil funds help reduce macroeconomic volatility. The econometric estimation results from a 30-year panel data set of 15 countries with and without oil funds suggest that oil funds are associated with reduced volatility of broad money and prices and lower inflation. However, there is a statistically weak negative association between the presence of an oil fund and volatility of the real exchange rate.

Series:

Working Paper No. 2007/096

Subject:

Monetary base Oil Oil exports Oil prices Real exchange rates

Frequency:

Monthly

English

Publication Date:

April 1, 2007

ISBN/ISSN:

9781451866605/1018-5941

Stock No:

WPIEA2007096

Pages:

18

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