Azerbaijan 2010-2014
Tomáš Motl
Fast growth, driven by construction
...
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• But what was the real driver? Why so much
construction?
• How was construction financed?
… but financed by oil income
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Oil was the key export article
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• Azerbaijan could not export anything else than oil
• Their other products were not internationally competitive
– Why?
– How is this phenomenon called?
Current account in large surpluses
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What did they do with the money?
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• Constant outward flow of investment
Central bank was accumulating
foreign reserves
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• But why?
Monetary policy regime?
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• The CBA had one main objective – what was that?
So what happened to inflation?
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• Inflation was all over the place because there was no
inflation targeting!
• But why jump so much up and down?
Real effective exchange rate!
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• Changes in REER were reflected mainly in the price
level, not in the nominal FX rate!
But what drove the REER?
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• Dutch disease in real life
Implications for our model
• Key role of oil:
– GDP growth (domestic demand)
– REER
• No inflation targeting, heavily managed FX rate
• Small effect of foreign demand on domestic economy
(almost no non-oil exports)
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Homework for the next block –
another presentation
• Goals:
– Explain what happened in 2015-16
– Focus on GDP, exchange rate, inflation
– Focus on the shock (trigger) and how it affected the economy
– Also focus on the central bank’s reaction
– Be more talkative this time, explain things
• Should be again around 10 slides
– Should help us to understand which shocks we should use in
the forecast
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