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Oil price shocks and effectiveness of devaluation in Fiji

Prakash, Kushneel A. and Maiti, Dibyendu S. (2013) Oil price shocks and effectiveness of devaluation in Fiji. UNSPECIFIED. (Unpublished)

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Abstract

Domestic inflation tends to crowd out the effectiveness of devaluation mainly due to the increased import costs. But, if the inflation is driven by external oil price shocks, it has an ambiguity on the same. This would depend on the relative influence of oil price on the domestic and foreign price of the major trading partners. The current paper would like to empirically investigate the effect of oil price on the exchange rate movement and the resultant trade balance for the case of Fiji. The issue of oil price has been, so far, ignored in such analysis undertaken in Fiji, because of negligible export share of manufacturing activities of the country. Since oil price could influence the domestic price through the increased transport and other costs, it can still negate the effect of devaluation. We find that the domestic inflation has been influenced by the oil price shocks from early 2000 and this has partially limited the potential benefits of the recent devaluation. As a result,the transformation process from importable to exportable production has been weak and working against the objective of devaluation in Fiji in recent years. This further contributes to the inflationary process of the economy and puts the economy into a dilemma of choosing between devaluation and the fight against it.

Item Type: Other
Uncontrolled Keywords: conference, presentation
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Business and Economics (FBE) > School of Economics
Depositing User: Kushneel Prakash
Date Deposited: 02 Apr 2014 12:19
Last Modified: 06 Jul 2016 11:29
URI: http://repository.usp.ac.fj/id/eprint/7259
UNSPECIFIED

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