The purpose of this paper is to study the potential loss of competitiveness due to higher oil prices through the monetary channel in a group of six oil producing countries.
A dynamic time series methodology, Dynamic Simultaneous Equations, is applied to Vector Autoregressive Moving Average model with exogenous variables.
Mixed evidence was found of loss of competitiveness due to high oil prices in the sample.
Findings are useful both for academic researchers in international finance or development economics. Policy makers will find the results useful for implementing stabilization or neutralization policies.
The empirical work extends earlier research in several directions including extension to six oil‐producing countries, use of data over the flexible exchange rate period, and a more suitable technique, which estimates the model in a dynamic setting.
