Oil price shocks, exchange rate and macroeconomic fluctuations in a small oil-exporting economy

This study investigates the macroeconomic effects of adverse oil price shocks on a small oil-exporting economy - the Azerbaijan economy. We estimate a recursive (near) VAR model by using monthly macroeconomic data from 2006 to 2018. The results indicate the Azerbaijan economy is adversely influenced by an oil price decline. Specifically, we find that a negative oil price shock deteriorates trade balance, causes a currency depreciation, increases inflation and falls economic activity. Furthermore, our findings imply that the oil price-led devaluation shapes the inflationary and recessionary consequences of this shock. (C) 2020 Elsevier Ltd. All rights reserved.