Exchange Rate of the US Dollar and the J Curve: The Case of Oil Exporting Countries

Energy Economics 25 (2003) 741-765.

Posted: 31 Mar 2013

See all articles by Ayoub Yousefi

Ayoub Yousefi

University of Western Ontario - Department of Economics

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: 2003

Abstract

This study examines the effects of changes in the exchange rate of the US dollar on the trade balances of three oil-exporting countries, namely Iran, Venezuela and Saudi Arabia. An exchange rate pass-through model is applied to allow changes in the exchange rate of the dollar to affect prices of traded goods. Then, the impact of changes in prices on the quantities of imports and exports of these economies is estimated. The results suggest a partial exchange rate pass-through to these countries’ import and export prices in terms of the US dollar. While the three countries raise the price of their primary export (namely crude oil) in response to a depreciation of the dollar, Saudi Arabia’s long-run pricing strategy in securing a larger market share stands in contrast to that of the two other OPEC members. The sum of the estimated long-run price elasticities of demand for imports and exports is found to exceed unity for Iran and Venezuela, but less than unity for Saudi Arabia.

Keywords: Trade balance, J-curve, Invoicing currency, Exchange rate pass-through, Crude oil

JEL Classification: F31, F32, F14

Suggested Citation

Yousefi, Ayoub and Wirjanto, Tony S., Exchange Rate of the US Dollar and the J Curve: The Case of Oil Exporting Countries (2003). Energy Economics 25 (2003) 741-765., Available at SSRN: https://ssrn.com/abstract=2241876

Ayoub Yousefi

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada

Tony S. Wirjanto (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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