Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153392
Authors: 
Habib, Maurizio Michael
Stráský, Jan
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 958
Abstract: 
This paper discusses the choice of an optimal external anchor for oil exporting economies, using optimum currency area criteria and simulations of a simple model of a small open economy pegging to a basket of two currencies. Oil exporting countries - in particular those of the Gulf Cooperation Council - satisfy a number of key optimum currency area criteria to adopt a peg. However, direction of trade and synchronisation of business cycle of oil exporters suggest that there is no single "ideal" external anchor among the major international currencies. Model simulations - parameterised for an oil exporting economy - indicate that a currency basket is generally preferable to a single currency peg, especially when some weight is placed by the policy maker on output stabilisation. Only when inflation becomes the only policy objective and external trade is mostly conducted in one currency that a peg to a single currency becomes optimal.
Subjects: 
basket
Exchange Rate Regimes
model simulation
oil exporting countries
JEL: 
F31
C30
C51
C61
O24
Document Type: 
Working Paper

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