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Institutions and Macroeconomic Policies in Resource-Rich Arab Economies$
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Kamiar Mohaddes, Jeffrey B. Nugent, and Hoda Selim

Print publication date: 2019

Print ISBN-13: 9780198822226

Published to Oxford Scholarship Online: July 2019

DOI: 10.1093/oso/9780198822226.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 25 November 2020

Threshold Effects of Fiscal-Monetary Interdependence and Exchange Rate Regimes in Oil-Dependent Arab Economies

Threshold Effects of Fiscal-Monetary Interdependence and Exchange Rate Regimes in Oil-Dependent Arab Economies

Chapter:
(p.73) 4 Threshold Effects of Fiscal-Monetary Interdependence and Exchange Rate Regimes in Oil-Dependent Arab Economies
Source:
Institutions and Macroeconomic Policies in Resource-Rich Arab Economies
Author(s):

Ibrahim Elbadawi

Mohamed Goaied

Moez Ben Tahar

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198822226.003.0004

This chapter contributes to the literature on fiscal-monetary interdependence in resource-dependent economies in the Arab World, specifically during the post-mid-1990s oil boom. It also provides empirical evidence on threshold effects for oil rents per capita. These findings support differentiated exchange rate regime choices in economies with low rent per capita, such as Sudan and Yemen, relative to wealthier Gulf Cooperation Council (GCC) economies and Algeria. The first group suffers from fiscal dominance, which explains their choice of soft pegged exchange rate regimes and their failure to sustain credible exchange rate-based stabilization programs. GCC countries, however, managed to maintain credible de facto pegged exchange rate regimes and convertible currencies, while Algeria graduated to a successfully managed exchange rate regime. Nevertheless, in contrast to Chile and Norway, Arab oil economies still need to establish credible fiscal rules for conducting monetary policy in order to withstand the effects of permanently lower oil prices.

Keywords:   Arab oil economies, GCC, Algeria, Chile, Norway, Sudan, Yemen

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