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How Oil Price Drops are Reflected by Imported Inflation in Azerbaijan?

Author

Listed:
  • Nazim Hajiyev

    (Department of Economics and Business Management, Azerbaijan State University of Economics (UNEC), Baku, Azerbaijan, Visiting Scholar, Davis Center for Russian and Eurasian Studies, Harvard University, USA,)

  • Ali Rustamov

    (Department of Economics and Business Management, Ph.D. Candidate in the Institute for Scientific Research on Economic Reforms (ISRER), Azerbaijan.)

Abstract

Oil price shocks are generally seen as a major factor affecting the macroeconomic situation of the country, especially oil exporting countries such as Azerbaijan. While some authors have stated the direct channels of transmission of energy price shocks, other authors have considered the more of an indirect transmission of oil prices effects to the major macroeconomic variables. In this paper a cointegrated vector autoregressive model, vector error correction model model has been considered for Azerbaijan in order to study the response of inflation to oil price shocks. Empirical analysis shows that, for Azerbaijan there seems to be a statistical significant short-run relationship of unexpected oil price shocks on inflation rate that supported to reveal the imported inflation in Azerbaijan. Besides, there have been found a long run relationship running from exports, exchange rate, money supply, imports to the inflation in Azerbaijan as well. In conclusion, decreases in oil prices are transmitted to high imported inflation by lowering the value of domestic exchange rate and increasing the value of imports.

Suggested Citation

  • Nazim Hajiyev & Ali Rustamov, 2019. "How Oil Price Drops are Reflected by Imported Inflation in Azerbaijan?," International Journal of Energy Economics and Policy, Econjournals, vol. 9(2), pages 182-193.
    • Handle: RePEc:eco:journ2:2019-02-21
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    References listed on IDEAS

    as
    1. Francesco Carlucci & Francesco Montaruli, 2014. "Co-Integrating Var Models And Economic Policy," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 68-81, February.
    2. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
    3. Christiane Baumeister & Lutz Kilian, 2016. "Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 139-160, Winter.
    4. Hilde Christiane Bjørnland, 1997. "Estimating Core Inflation - The Role of Oil Price Shocks and Imported Inflation," Discussion Papers 200, Statistics Norway, Research Department.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Niftiyev, Ibrahim, 2020. "Analysis of Inflation Trends in Urban and Rural Parts of Azerbaijan: Main Drivers and Links to Oil Revenue," EconStor Preprints 226217, ZBW - Leibniz Information Centre for Economics.
    2. Taufeeque Ahmad Siddiqui & Haseen Ahmed & Mohammad Naushad & Uzma Khan, 2023. "The Relationship between Oil Prices and Exchange Rate: A Systematic Literature Review," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 566-578, May.
    3. Khatai Aliyev & Sugra Humbatova & Natig Hajiyev Gadim-Oglu, 2023. "How Oil Price Changes Affect Inflation in an Oil-Exporting Country: Evidence from Azerbaijan," Sustainability, MDPI, vol. 15(7), pages 1-11, March.
    4. Bulat Mukhamediyev & Zhansaya Temerbulatova, 2019. "The Impact of Oil Prices on the Global Competitiveness of National Economies," International Journal of Energy Economics and Policy, Econjournals, vol. 9(6), pages 45-50.
    5. Ibrahim Niftiyev & Natavan Namazova, 2020. "Analysis of Cyclicality in the Azerbaijan Economy: Results of the Chi-Square Test," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(2), pages 122-134, June.

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    More about this item

    Keywords

    Imported Inflation; Oil Price Shocks; Exchange Rate; Vector Error Correction Model; Money Supply; Exports;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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