Inflation Targeting and Effects of Oil Price Shocks in ECO, Case Study of Iran, Kazakhstan and Turkey*

Arash Fakhrizadeh and Ziba Hojatti

Department of Economics, Abadan branch, Islamic Azad University, Abadan, Iran.

DOI : http://dx.doi.org/10.13005/bbra/2192

ABSTRACT: The recent researches about the effects of oil price shocks on economy show that this kind of shocking 2000s unlike 1970s had had different results for importing and exporting economies. Experimental findings identified inflation control by more effective policies and more reliable central banks for fixing prices as one of the most reasons of this difference. This research intended to compare effects of oil price shocks between countries that have been successful or unsuccessful in controlling inflation rate. Selected countries were members of the Economic Cooperation Organization (ECO) and oil price shock effects on their economy were considered by structural vector autoregressive regression with seasonal time series during 1996-Q1 to 2012-Q4. The impulse response functions and variance decomposition analysis of prediction error showed that successful countries (Kazakhstan and Turkey) in controlling inflation rate versus the unsuccessful country (Iran) during the under-study period experienced a higher economic growth rate along with lower inflation rate. On the other hand, to confirm findings of Blanchard and Gali (2007) for both oil exporting and importing countries, reliable monetary policies of Central bank for controlling fluctuations of general level of prices more effectively is one of the factors of maintaining high average production growth rate and low inflation rate during creation of oil price shocks.

KEYWORDS: Oil Price Shock; Inflation; ECO; SVAR Model

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