Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-848d4c4894-2pzkn Total loading time: 0 Render date: 2024-06-04T19:24:57.765Z Has data issue: false hasContentIssue false

10 - Labor Market Heterogeneity and Optimal Exchange Rate Regimes in Resource-rich Arab Countries

Published online by Cambridge University Press:  05 July 2016

Ibrahim Elbadawi  and
Hoda Selim
By
Almukhtar Saif Al-Abri
Ibrahim Elbadawi
Affiliation:
Dubai Economic Council and Economic Research Forum (ERF), Egypt
Hoda Selim
Affiliation:
Economic Research Forum (ERF), Egypt
Get access

Summary

Abstract

This chapter attempts to incorporate the role of labor market flexibility in a unified theoretical framework of optimal exchange rate policies for resource-rich economies. For that purpose, the chapter extends the standard rules-versus-discretion model of monetary policy to allow for different assumptions about wage rigidities. The analysis suggests that when all prices are exogenous and wages are all optimally indexed to inflation (i.e., labor market flexibility case), fixed exchange rate regimes deliver more desirable outcomes in terms of real output, inflation and insulation against external shocks compared to flexible exchange rate regimes. Meanwhile, the fixity of exchange rates combined with rigid goods and labor markets can add to real appreciations.

Type
Chapter
Information
Understanding and Avoiding the Oil Curse in Resource-rich Arab Economies , pp. 301 - 321
Publisher: Cambridge University Press
Print publication year: 2016

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Al-Abri, A. (2014). Optimal Exchange Rate Policy for a Small-Oil Exporting Country: A General Equilibrium Perspective. Economic Modelling 36: 88–98.CrossRefGoogle Scholar
Aizenman, J., Glick, R. (2008). Pegged Exchange Rate Regimes – a Trap? Journal of Money, Credit and Banking 40(4): 817–835.CrossRefGoogle Scholar
Barro, R., Gordan, D. (1983). A Positive Theory of Monetary Policy in a Natural Rate Model. Journal of Political Economy 91: 589–610.CrossRefGoogle Scholar
Berger, H., Jensen, H., Schjelderup, G. (2001). To Peg or Not To Peg? A Simple Model of Exchange Rate Regime Choice in Small Economies. Economics Letters 73: 161–167.CrossRefGoogle Scholar
Castrén, O., Takalo, T., Wood, G. (2004). Labour Market Reform and the Sustainability of Exchange Rate Pegs. Working Paper Series 0406. European Central Bank.Google Scholar
Chia, W-M., Cheng, T., Li, M. (2012). Exogenous Shocks and Exchange Rate Regimes. World Economy 35(4): 444–460.Google Scholar
Coudert, V., Couharde, C., Mignon, V. (2011). Does Euro or Dollar Pegging Impact the Real Exchange Rate? The Case of Oil and Commodity Currencies. The World Economy 34(9): 1557–1592.CrossRefGoogle Scholar
Devereux, M., Engel, C. (2003). Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibility. Review of Economic Studies 70: 765–783.CrossRefGoogle Scholar
Edwards, S. (1996). The Determinants of the Choice between Fixed and Flexible Exchange Rate Regimes. National Bureau of Economic Research. Working Paper No. 5756. Cambridge, MA: NBER.Google Scholar
Edwards, S. (2000). Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences. In: Edwards, S. (Ed.), 2000, Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies (pp. 197–246), Chicago and London: University of Chicago Press,CrossRefGoogle Scholar
Eichengreen, B. (1999). Kicking the Habit: Moving from Pegged Rates to Greater Exchange Rate Flexibility. Economic Journal 109, C1–C14.CrossRefGoogle Scholar
Elbadawi, I., Kamar, B. (2005). The Great Debate on Exchange Rate Regimes: Why Should the MENA Region Care? SSRN Working Paper (http://ssrn.com/abstract=1465594).Google Scholar
Engel, C. (2009). Currency Misalignment and Optimal Monetary Policy: A Reexamination. National Bureau of Economic Research. Working Paper No. 14829. Cambridge, MA: NBER.CrossRefGoogle Scholar
Flood, R., Marion, N. (1999). Perspectives on the Recent Currency Crisis Literature. International Journal of Finance and Economics 4: 1–16.3.0.CO;2-3>CrossRefGoogle Scholar
Frankel, J. (2005). Peg the Export Price Index: A Proposed Monetary Regime for Small Countries. Journal of Policy Modeling 27: 495–508.Google Scholar
Frankel, J. (2010). The Natural Resource Curse: A Survey. National Bureau of Economic Research. Working Paper No. 15836. Cambridge, MA: NBER.CrossRefGoogle Scholar
Ghanem, D. (2012). Fixed Exchange Rate Regimes and Inflation Performance: Evidence from MENA Countries. Review of Middle East Economics and Finance 8: 1–30.Google Scholar
Gray, J. (1976). Wage Indexation: A Macroeconomic Approach. Journal of Monetary Economics 2: 221–235.CrossRefGoogle Scholar
Habib, M., Stráský, J. (2008). Oil Exporters: In Search of an External Anchor. Working Paper Series No. 958. European Central Bank.CrossRefGoogle Scholar
International Monetary Fund. (2010). Annual Report on Exchange Restrictions and Exchange Arrangements. Washington DC: International Monetary Fund.Google Scholar
Jbili, A., Karamenko, V. (2003). Should MENA Countries Float or Peg? . IMF Finance and Development 40 No.1, pp. 30–35. Available via the Internet: www.imf.org/external/pubind.htm.Google Scholar
Khoudour-Castéras, D. (2009). Labour Immobility and Exchange Rate Regimes: An Alternative Explanation for the Fall of the Interwar Gold Exchange Standard. Journal of European Economic History 38(1): 13–47.Google Scholar
Leenders, R., Sfakianakis, J. (2003). Middle East and North Africa, in Global Corruption Report 2003, Transparency International (www.globalcorruptionreport.org/gcr2003.htm).Google Scholar
Levy-Yeyati, E., Sturzenegger, F., Reggio, I. (2010). On the Endogeneity of Exchange Rate Regimes. European Economic Review 54: 659–677.Google Scholar
Naufal, G., Carlos, V-S. (2010). Migrant Transfers in the MENA Region: A Two-Way Street in which Traffic is Changing. Migration Letters 7(2): 168 – 178.Google Scholar
Selim, H., Zaki, C. This volume. The Institutional Curse of Natural Resources in the Arab World.Google Scholar
Setser, B. (2007). The Case for Exchange Rate Flexibility in Oil-Exporting Economies. Policy brief 8, Peterson Institute for International Economics, Washington, D.C.Google Scholar
Sfia, M. (2011). The choice of exchange rate regimes in the MENA countries: A probit analysis. International Economics and Economic Policy 8: 275–305.Google Scholar
Squalli, J. (2011). Is the Dollar Peg Suitable for the Largest Economies of the Gulf Cooperation Council? Journal of International Financial Markets, Institutions & Money 21: 496–512.Google Scholar
Svensson, L. (1999). Inflation Targeting as a Monetary Policy Rule. Journal of Monetary Economics 43(3): 607–654.Google Scholar
Svensson, L., Woodford, M. (2004). Indicator Variables for Optimal Policy under Asymmetric Information. Journal of Economic Dynamics and Control 28(4): 661–690.Google Scholar
Taş, B., Togay, S. (2010). Optimal Monetary Policy Regime for Oil Producing Developing Economies: Implications for Post-War Iraq. Economic Modelling 27(5): 1324–1336.CrossRefGoogle Scholar
Willett, T., Al-Barwani, K., El Hag, S. (2010). The GCC’s Fixed Exchange Rate: A Major Anomaly for OCA Analysis. The World Economy 33(12): 1702–1717.Google Scholar
World Bank, (2007). Middle East and North Africa Region: 2007 Economic Developments and Prospects. Job Creation in an Era of High Growth. Washington DC: World Bank.Google Scholar
Yousefi, A., Wirjanto, T. (2003). Exchange Rate of the US Dollar and the J Curve: The Case of Oil Exporting Countries. Energy Economics 25: 741–765.Google Scholar

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×