Effects of Oil Price Shock on the Exchange Rate of National Currencies in Oil-Rich Countries: In the Case of some Arab Countries and Azerbaijan

Abstract

In the article, the effects of oil price changes on inflation and the exchange rate in Saudi Arabia, Iraq, Kuwait, and UAE, as well as in Azerbaijan, were econometrically assessed. The comparison between Azerbaijan and these Arab countries was made because oil revenues play an important role in the economy of these countries, but its effects are different. Saudi Arabian riyal, Iraqi dinar, Kuwaiti dinar, and UAE dirham depend on oil prices in the world market for the long run. In the short run, there is no such dependence. It is confirmed that Azerbaijani manat is dependent on oil revenues for the long run. Addiction is not felt in the short run. In the oil-rich Arab countries and Azerbaijan, the non-dependence of the national currency on the world market on oil prices is due to the state regulation of the national currency’s exchange rate in these countries. In none of these countries is the national currency liberal, and its exchange rate is not determined by supply and demand in the market.