Analyses of Azerbaijan’s foreign trade by integrating volatilities of rates of changes in oil prices and exchange rates

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2022-12

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Suleymanli, Shohrat

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Oil price and real effective exchange rate, which are the determining factors for export- import and Gross Domestic Product (GDP), have been the subject of much research in oil-exporting countries. Because of Azerbaijan’s dependence on crude oil export, the fluctuations in oil prices, together with exchange rate movements, have implications for the Azerbaijanian economy. This research examines (a) the relationships between export-import growth and GDP growth, (b) impacts of rates of changes in oil price and real effective exchange rate (DLPOIL&DLREER), also the volatilities of DLPOIL and DLREER (VOLPOIL&VOLREER) on export-import growth and GDP growth using Vector Autoregressive (VAR) model on quarterly time series between 2001Q1- 2020Q4. To find the volatilities of DLPOIL and DLREER, Autoregressive and Generalized Autoregressive Conditional Heteroskedasticity (ARCH&GARCH) models were employed. To determine the impacts of DLPOIL and DLREER, we used granger causality, impulse response functions, variance decomposition and dynamic multiplier function results of an unrestricted VAR model. Results of the VAR model show that (a) DLREER has a significant-negative effect only on GDP growth, (b) DLPOIL has a significant-positive impact on export growth and GDP growth, a significant-negative impact on import growth. Moreover, to find out the impact of VOLPOIL and VOLREER on other variables separately, a new VAR model was constructed with implementation of analysis methods used in previous VAR model. The findings of new VAR model reveal that (a) VOLREER has significant-negative effect only on GDP growth, (b) VOLPOIL has a significant-negative impact on export growth and GDP growth, a significant-positive impact on import growth.

Subject Keywords

Azerbaijan, Oil prices, Export-import, ARCH&GARCH, Vector autoregression

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https://hdl.handle.net/11511/101281

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Graduate School of Social Sciences, Thesis

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Citation Formats

S. Suleymanli, “Analyses of Azerbaijan’s foreign trade by integrating volatilities of rates of changes in oil prices and exchange rates,” M.S. - Master of Science, Middle East Technical University, 2022.