Nijat Guliyev - Working papers

Exchange rates, reserves, and economic growth: a non-linear approach.

In this paper we investigate the non-linear relationship between exchange rate volatility, foreign reserves and economic growth. Applying a dynamic panel estimation model on an quarterly data covering sixty developed and developing countries from 1997 to 2019, we find significant non-linear relationships among these macroeconomic variables. Our findings show that exchange rate volatility and depreciation generally exert negative effects on growth, with foreign reserves playinga important mitigating role. We also show that the sign and significance of these interactions vary across country groups, highlighting the importance of accounting for group-specific heterogeneity. This study contributes to the literature by offering detailed insights into the stabilizing role of foreign reserves and challenging the conventional wisdom regarding exchange rate depreciation. The results highlight the limitations of models that pool the countries together, and advocate for tailored policy approaches based on country-specific dynamics.

Modeling Azerbaijan’s Inflation and Output Using a Factor-Augmented Vector Autoregressive (FAVAR) Model (coauthored)

In this study, we build and use a factor-augmented vector autoregressive (FAVAR) model to forecast inflation and output in Azerbaijan. The FAVAR model is particularly effective in data-rich environments, alleviating the curse of dimensionality of the standard VAR model and handling omitted variable bias. Using 77 variables for factor extraction and quarterly data for the period 2003 to 2018, we build several multivariate models, including a FAVAR model, and compare their performance with that of a benchmark univariate model. Our findings show that almost all of the multivariate models underperform in comparison with the univariate model. This result is in line with the literature, which finds that simple models are better forecasters of some macroeconomic variables, especially inflation. We acknowledge that the results might be affected by the relatively short length of the sample period and existence of irregularities in the data.

The effects of external shocks on Azerbaijan economy

This paper examines the effects of external shocks on the economy of oil rich Azerbaijan. Using oil price and macroeconomic indicators of three major trade partners of Azerbaijan – EU, Russia, and Turkey - as the external shock variables, we analyze the effects of those shocks on the domestic macroeconomic variables of Azerbaijan during the period from 2000Q1 to 2017Q4, in the SVAR framework with block exogeneity restriction. The results show that the overall importance of the four groups of shocks, in descending terms, is in the following order: oil shock, EU origin shocks, Russia origin shocks, and Turkey origin shocks. The major findings of the paper are: a) among considered foreign shocks oil price shock is the most important foreign shock for the economy of Azerbaijan; b) in general EU origin shocks has larger impact on considered domestic variables compared to other trade partners origin shocks; c) Turkey origin shocks have almost no impact in any of the considered domestic variables of Azerbaijan, d) among considered external shocks oil price is the main determinant of the non-oil sector of economy, and e) among considered external shocks GDP growth of the trade partners is the main determinant of the inflation in Azerbaijan.