Dr Kamiar Mohaddes
Faculty of Economics
University of Cambridge


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Work in Progress
Working Papers
Published and Forthcoming Papers
Persian Language Publications and Interviews
Policy Notes and Blogs
Video of Talks and TV and Radio Interviews


Work in Progress

·         Climate Change Uncertainty, Adaptation, and Growth, with Matthew E. Kahn, M. Hashem Pesaran, and Jui-Chung Yang.

·         Oil Production, Entrepreneurship, and the Allocation of Talent, with Tiago V. de V. Cavalcanti.


Books

·         Institutions and Macroeconomic Policies in Resource-Rich Arab Economies, with Jeffrey B. Nugent and Hoda Selim. Oxford University Press, forthcoming in 2018.


Working Papers

·         The Dynamics and Determinants of Kuwait’s Long-Run Economic Growth, with Nadeem A. Burney, Ahmad Alawadhi, and Marwa Al-Musallam (June 2017).

Abstract: This paper develops a quarterly macro-econometric model for the Kuwaiti economy estimated over the period 1979Q2-2013Q1, allowing us to investigate the long-run role of oil income in the development of Kuwait as well as the direct effects of oil revenue, foreign output, and equity price shocks on real output. More specifically, we examine to what extent Kuwaiti real output in the long run is shaped by oil revenue through their impact on capital accumulation, and technological transfers through foreign output. Using the same modelling strategy we also explore the role of oil income in terms of long-run private and public sector output growth (separately). The estimates suggest that real domestic output in the long run is influenced by oil revenues and foreign output (a proxy for technological progress), and technological growth in Kuwait is on a par with the rest of the world. Furthermore, while we show that both oil revenues and foreign output drive growth in the public sector, it seems that technological progress is the main (and only) driver for private sector real growth. Finally, our results show that oil revenue and global equity market shocks have a large and significant long-run impact on Kuwait's real output and public sector GDP. In comparison, the effects of the foreign output shock is muted.
JEL Classifications: C32, C53, E17, F43, F47, Q32.
Key Words: Growth models, long-run relations, oil exporters, Kuwaiti economy, oil revenue and foreign output shocks.

·         The U.S. Oil Supply Revolution and the Global Economy, with Mehdi Raissi (January 2016).

Abstract: This paper investigates the global macroeconomic consequences of falling oil prices due to the oil revolution in the United States, using a Global VAR model estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved through imposing dynamic sign restrictions on the impulse responses of the model. The results show that there are considerable heterogeneities in the responses of different countries to a U.S. supply-driven oil price shock, with real GDP increasing in both advanced and emerging market oil-importing economies, output declining in commodity exporters, inflation falling in most countries, and equity prices rising worldwide. Overall, our results suggest that following the U.S. oil revolution, with oil prices falling by 51 percent in the first year, global growth increases by 0.16 to 0.37 percentage points. This is mainly due to an increase in spending by oil importing countries, which exceeds the decline in expenditure by oil exporters.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, E17, F44, F47, O13, Q43.
Key Words: Tight oil, shale oil, fracking revolution, oil price decline, oil supply, global macroeconometric modeling, and international business cycle.
IMF Working Paper Version: WP/15/259.
Media Coverage: The paper was featured in the Financial Times (January 27, 2016), in an interview with Kamiar Mohaddes.

·         Debt, Inflation and Growth: Robust Estimation of Long-Run Effects in Dynamic Panel Data Models , with Alexander Chudik, M. Hashem Pesaran, and Mehdi Raissi (November 2013).

Abstract: This paper investigates the long-run effects of public debt and inflation on economic growth. Our contribution is both theoretical and empirical. On the theoretical side, we develop a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in dynamic heterogeneous panel data models with cross-sectionally dependent errors. The relative merits of the CS-DL approach and other existing approaches in the literature are discussed and illustrated with small sample evidence obtained by means of Monte Carlo simulations. On the empirical side, using data on a sample of 40 countries over the 1965-2010 period, we find significant negative long-run effects of public debt and inflation on growth. Our results indicate that, if the debt to GDP ratio is raised and this increase turns out to be permanent, then it will have negative effects on economic growth in the long run. But if the increase is temporary, then there are no long-run growth effects so long as debt to GDP is brought back to its normal level. We do not find a universally applicable threshold effect in the relationship between public debt and growth. We only find statistically significant threshold effects in the case of countries with rising debt to GDP ratios.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C23, E62, F34, H6.
Key Words: Long-run relationships, estimation and inference, large dynamic heterogeneous panels, cross-section dependence, debt, inflation and growth, debt overhang.
Dallas Fed Working Paper Version: No. 162.
Matlab Codes for the CS-DL Estimators: Click here for the Matlab codes for the cross-sectionally augmented distributed lag (CS-DL) Mean Group and Pooled estimators developed in Chudik et al. (2013).
Data and Stata Do File: Click here for the data as well as the Stata do files needed to transform the data and compute the statistics and results in "Debt, Inflation and Growth: Robust Estimation of Long-Run Effects in Dynamic Panel Data Models".
YouTube Video: Click here for a video recording of a lecture given by M. Hashem Pesaran based on "Debt, Inflation and Growth: Robust Estimation of Long-Run Effects in Dynamic Panel Data Models".

·         Institutions and the Volatility Curse, with Weishu Leong (July 2011).

Abstract: This paper revisits the resource curse paradox and studies the impact of resource rents and their volatility on economic growth under varying institutional quality. Using five-year non-overlapping observations between 1970 and 2005 for 112 countries, we find that while resource rents enhance real output per capita, their volatility exerts a negative impact on economic growth. Therefore, we argue that volatility, rather than abundance per se, drives the resource curse. However, we also find that higher institutional quality can help offset some of the negative volatility effects of resource rents. Therefore, resource abundance can be a blessing provided that growth and welfare enhancing policies and institutions are adopted.
JEL Classifications: C23, F43, O13, O40.
Key Words: Economic growth, resource curse, institutions, resource rent, and commodity price volatility.
Cambridge Working Paper Version: CWPE 1145.

Published and Forthcoming Papers

·         Kuwait’s Macroeconomic Performance in the Global Context, with Ahmad Alawadhi, Nadeem. A. Burney, and Ahmed Al-Khayat (2018), forthcoming in Arab Journal of Administrative Sciences.

Abstract: This paper disentangles the size and speed of the transmission of different global macroeconomic shocks originating from three systemic countries (China, Euro Area, and the US) to the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE). It also investigates the implications of shocks to both global equity and oil markets for the Kuwaiti and the other Gulf Cooperation Council (GCC) economies. Based on a Global VAR model estimated for 28 countries/regions over the period 1979Q2 to 2013Q1, our results show that US GDP, oil price, and equity market shocks have permanent and statistically significant long-run impacts on Kuwait’s real output and oil production (taking account of both direct exposures of Kuwait to these shocks and indirect effects through third-markets). These impacts are very similar for the rest of the GCC countries. Our results illustrate the importance of modeling the economy of Kuwait, and of the GCC countries in general, in a global context, taking into account spillover effects from trading partners as well as global equity markets rather than just focusing on the oil market, which is what has traditionally been done.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, E17, E32, F44, O53, Q41.
Key Words: Global VAR (GVAR), interconnectedness, global macroeconomic modeling, impulse responses, macroeconomic shocks, international business cycle, Kuwait, and Gulf Cooperation Council Countries.

·         Do Sovereign Wealth Funds Dampen the Negative Effects of Commodity Price Volatility?, with Mehdi Raissi (2017), Journal of Commodity Markets 8, pp. 18–27.

Abstract: This paper studies the impact of commodity terms of trade (CToT) volatility on economic growth (and its sources) in a sample of 69 commodity-dependent countries, and assesses the role of Sovereign Wealth Funds (SWFs) and quality of institutions in their long-term growth performance. Using annual data over the period 1981-2014, we employ the Cross-Sectionally augmented Autoregressive Distributive Lag (CS-ARDL) methodology for estimation to account for cross-country heterogeneity, cross-sectional dependence, and feedback effects. We find that while CToT volatility exerts a negative impact on economic growth (operating through lower accumulation of physical capital and lower TFP), the impact is dampened if a country has a SWF and a better institutional quality (hence a more stable government expenditure).
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C23, E32, F43, O13, O40.
Key Words: Economic growth, commodity prices, volatility, and sovereign wealth funds
Dallas Fed Working Paper Version: No. 304.
Commodity Term of Trade (CToT) Data: Click here for the package containing annual data from 1981 to 2014 on growth rate of commodity terms of trade (CToT) and realized CToT volatility for 163 countries.

·         Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis, with Mehdi Raissi and Anke Weber (2017), Economics Letters 159, pp. 185–189.

Abstract: This paper examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997-2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we find that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long-standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.
JEL Classifications: C23, E44, G33.
Key Words: Italy, non-performing loans, real output growth, panel tests of threshold effects.
IMF Working Paper Version: WP/17/66.
Media Coverage: The paper was featured in a number of Italian newspapers.

·         Oil Prices and the Global Economy: Is It Different This Time Around?, with M Hashem Pesaran (2017), Energy Economics 65, pp. 315–325.

Abstract: The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the US and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around 4 quarters after the shock). We then re-examine the effects of low oil prices on the US economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946--2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, E17, E32, F44, F47, O51, Q43.
Key Words: Oil prices, equity prices, dividends, economic growth, oil supply, global oil markets, and international business cycle.
Working Paper Version: May 6, 2017.
Media Coverage: See also our article on Is Cheap Oil Really Good for the Global Economy? published in the Financial Times (July 14, 2016). The paper was also featured in Sputnik (January 26, 2017), in an interview with Kamiar Mohaddes.
YouTube Video: Click here for a video recording of a lecture given by M. Hashem Pesaran based on this paper.

·         Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers, with Amany El-Anshasy and Jeffrey B. Nugent, forthcoming in Kamiar Mohaddes, Jeffrey B. Nugent, and Hoda Selim (eds.), Institutions and Macroeconomic Policies in Resource-Rich Arab Economies, Oxford University Press.

Abstract: This paper examines the long-run effects of oil revenue and its volatility on economic growth as well as the role of institutions in this relationship. We collect annual and monthly data on a sample of 17 major oil producers over the period 1961---2013, and use the standard panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to the earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity and cross-sectional dependence. Our results suggest that (i) there is a significant negative effect of oil revenue volatility on output growth, (ii) higher growth rate of oil revenue significantly raises economic growth, and (iii) better fiscal policy (institutions) can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox, not the abundance of oil revenues as such.
JEL Classifications: C23, E02, F43, O13, Q32.
Key Words: Economic growth, natural resource curse, institutions, oil price volatility, oil income, macroeconomic policy.
Dallas Fed Working Paper Version: No. 310.
YouTube Video: Click here for a video recording of a talk given by Kamiar Mohaddes at the ERF and Arab Fund conference on Monetary and Fiscal Institutions in Resource-Rich Arab Economies in Kuwait.

·         China's Slowdown and Global Financial Market Volatility: Is World Growth Losing Out?, with Paul Cashin and Mehdi Raissi (2017), Emerging Markets Review 31, pp. 164–175.

Abstract: China's GDP growth slowdown and a surge in global financial market volatility could both adversely affect an already weak global economic recovery. To quantify the global macroeconomic consequences of these shocks, we employ a GVAR model estimated for 26 countries/regions over the period 1981Q1 to 2013Q1. Our results indicate that (i) a one percent permanent negative GDP shock in China (equivalent to a one-off one percent growth shock) could have significant global macroeconomic repercussions, with world growth reducing by 0.23 percentage points in the short-run; and (ii) a surge in global financial market volatility could translate into a fall in world economic growth of around 0.29 percentage points, but it could also have negative short-run impacts on global equity markets, oil prices and long-term interest rates.
JEL Classifications: C32, E32, F44, O53.
Key Words: China's slowdown, global financial market volatility, international business cycle, and Global VAR.
Working Paper Version: February 25, 2017.

·         Fair Weather or Foul? The Macroeconomic Effects of El Niño, with Paul Cashin and Mehdi Raissi (2017), Journal of International Economics 106, pp. 37–54.

Abstract: This paper employs a dynamic multi-country framework to analyze the international macroeconomic transmission of El Niño weather shocks. This framework comprises 21 country/region-specific models, estimated over the period 1979Q2 to 2013Q1, and accounts for not only direct exposures of countries to El Niño shocks but also indirect effects through third-markets. We contribute to the climate-macroeconomy literature by exploiting exogenous variation in El Niño weather events over time, and their impact on different regions cross-sectionally, to causatively identify the effects of El Niño shocks on growth, inflation, energy and non-fuel commodity prices. The results show that there are considerable heterogeneities in the responses of different countries to El Niño shocks. While Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa face a short-lived fall in economic activity in response to an El Niño shock, for other countries, an El Niño occurrence has a growth-enhancing effect; some (for instance the U.S.) due to direct effects while others (for instance the European region) through positive spillovers from major trading partners. Furthermore, most countries in our sample experience short-run inflationary pressures as both energy and non-fuel commodity prices increase. Given these findings, macroeconomic policy formulation should take into consideration the likelihood and effects of El Niño episodes.
JEL Classifications: C32, F44, O13, Q54..
Key Words: El Niño weather shocks, oil and non-fuel commodity prices, global macroeconometric modeling, international business cycle.
Working Paper Version: January 23, 2017.
Media Coverage: This paper has been covered extensively in major international news outlets including Bloomberg, the Economist, the Financial Times, the New York Times, the Wall Street Journal, and the Washington Post. It has also been featured in national news agencies in Australia, China, India, Japan, New Zealand, the United Kingdom, and the United States, to name a few. The paper was also highlighted in Ken Rogoff's opinion piece on Extreme Weather and Global Growth.
YouTube Video: Click here for a video recording of a talk given by Kamiar Mohaddes at the 13th Research Meeting of the National Institute of Public Finance and Policy and the Department of Economic Affairs of the Ministry of Finance in India.
CCTV America Interview: Click here to see the CCTV America interview with Kamiar Mohaddes.
BBC Interview: Click here or here to listen to the BBC interview with Kamiar Mohaddes.
The Heat Program Interview: Click here to see CCTV America's The Heat Program: El Niño and its Global Effects, on which Kamiar Mohaddes featured as a panelist.
Translation into other languages: You can also read a short version of the IMF Working Paper version in Arabic, French, Russian, and Spanish. A summary of the paper is also available in Persian.

·         Is There a Debt-Threshold Effect on Output Growth?, with Alexander Chudik, M. Hashem Pesaran, and Mehdi Raissi (2017), Review of Economics and Statistics 99:1, pp. 135–150.

Abstract: This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers.
JEL Classifications: C23, E62, F34, H6.
Key Words: Panel tests of threshold effects, long-run relationships, estimation and inference, large dynamic heterogeneous panels, cross-section dependence, debt, and inflation.
Supplement: Click here for the online supplement to "Is There a Debt-Threshold Effect on Output Growth?".
Dallas Fed Working Paper Version: No. 245.
Matlab Codes for the CS-DL Estimators: Click here for the Matlab codes for the cross-sectionally augmented distributed lag (CS-DL) Mean Group and Pooled estimators.
Matlab Codes for Panel Tests of Threshold Effects: Click here for the Matlab codes to test for threshold effects in the context of dynamic heterogeneous panel data models with cross-sectionally dependent errors.
Media Coverage: The paper was featured in the Financial Times (May 3, 2017).

·         Country-Specific Oil Supply Shocks and the Global Economy: A Counterfactual Analysis, with M. Hashem Pesaran (2016), Energy Economics 59, pp. 382–399.

Abstract: This paper investigates the global macroeconomic consequences of country-specific oil-supply shocks. Our contribution is both theoretical and empirical. On the theoretical side, we develop a model for the global oil market and integrate this within a compact quarterly model of the global economy to illustrate how our multi-country approach to modelling oil markets can be used to identify country-specific oil-supply shocks. On the empirical side, estimating the GVAR-Oil model for 27 countries/regions over the period 1979Q2 to 2013Q1, we show that the global economic implications of oil-supply shocks (due to, for instance, sanctions, wars, or natural disasters) vary considerably depending on which country is subject to the shock. In particular, we find that adverse shocks to Iranian oil output are neutralized in terms of their effects on the global economy (real outputs and financial markets) mainly due to an increase in Saudi Arabian oil production. In contrast, a negative shock to oil supply in Saudi Arabia leads to an immediate and permanent increase in oil prices, given that the loss in Saudi Arabian production is not compensated for by the other oil producers. As a result, a Saudi Arabian oil supply shock has significant adverse effects for the global economy with real GDP falling in both advanced and emerging economies, and large losses in real equity prices worldwide.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, E17, F44, F47, O53, Q43.
Key Words: Country-specific oil supply shocks, identification of shocks, oil sanctions, oil prices, global oil markets, Iran, Saudi Arabia, international business cycle, Global VAR (GVAR), interconnectedness, impulse responses.
Working Paper Version: July 25, 2016.
Data Files: Click here for the data as well as links to the Matlab files needed to compute the statistics and results in the empirical section of "Country-Specific Oil Supply Shocks and the Global Economy: A Counterfactual Analysis".
Media Coverage: The paper was featured in Tejarat-e Farda Issue 108, pp. 46–49 (November 8, 2014), in an interview with M. Hashem Pesaran and in Tejarat-e Farda Issue 109, pp. 82–83 (November 15, 2014), in an interview with Kamiar Mohaddes.

·         El Niño: Good Boy or Bad?, with Paul Cashin and Mehdi Raissi (2016), Finance & Development 53:1, pp. 30–33.

Abstract: El Niño has important effects on the world's economies–and not all of them are bad.
Translation into other languages: This paper is also available in Arabic, French, Russian, and Spanish.

·         The Global Impact of the Systemic Economies and MENA Business Cycles, with Paul Cashin and Mehdi Raissi (2016), in Ibrahim Ahmed Elbadawi and Hoda Selim (eds.), Understanding and Avoiding the Oil Curse in Resource-Rich Arab Economies, pp. 16–43, Cambridge University Press.

Abstract: This paper analyzes spillovers from macroeconomic shocks in systemic economies (China, the Euro Area, and the United States) to the Middle East and North Africa (MENA) region as well as outward spillovers from a GDP shock in the Gulf Cooperation Council (GCC) countries and MENA oil exporters to the rest of the world. This analysis is based on a Global Vector Autoregression (GVAR) model, estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Spillovers are transmitted across economies via trade, financial, and commodity price linkages. The results show that the MENA countries are more sensitive to developments in China than to shocks in the Euro Area or the United States, in line with the direction of evolving trade patterns and the emergence of China in the global economy as a major player. Outward spillovers from the GCC region and MENA oil exporters are likely to be stronger in their immediate geographical proximity, but also have global implications.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, E17, E32, F44, O53, Q41.
Key Words: Global VAR (GVAR), interconnectedness, global macroeconomic modeling, impulse responses, macroeconomic shocks, international business cycle, China, Euro Area, USA, Gulf Cooperation Council Countries, and the MENA region.
IMF Working Paper Version: WP/12/255.

·         Long-Run Effects in Large Heterogeneous Panel Data Models with Cross-Sectionally Correlated Errors, with Alexander Chudik, M. Hashem Pesaran, and Mehdi Raissi (2016), in R. Carter Hill, Gloria Gonzalez-Rivera, and Tae-Hwy Lee (eds.), Advances in Econometrics (Volume 36): Essays in Honor of Aman Ullah, pp. 85–135. Emerald Publishing.

Abstract: This paper develops a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in large dynamic heterogeneous panel data models with cross-sectionally dependent errors. The asymptotic distribution of the CS-DL estimator is derived under coefficient heterogeneity in the case where the time dimension (T) and the cross-section dimension (N) are both large. The CS-DL approach is compared with more standard panel data estimators that are based on autoregressive distributed lag (ARDL) specifications. It is shown that unlike the ARDL type estimator, the CS-DL estimator is robust to misspecification of dynamics and error serial correlation. The theoretical results are illustrated with small sample evidence obtained by means of Monte Carlo simulations, which suggest that the performance of the CS-DL approach is often superior to the alternative panel ARDL estimates particularly when T is not too large and lies in the range of 30≤T<100.
JEL Classifications: C23.
Key Words: Long-run relationships, estimation and inference, large dynamic heterogeneous panels, cross-section dependence.
Dallas Fed Working Paper Version: No. 223.
Matlab Codes for the CS-DL Estimators: Click here for the Matlab codes for the cross-sectionally augmented distributed lag (CS-DL) Mean Group and Pooled estimators.

·         Does Inflation Slow Long-Run Growth in India?, with Mehdi Raissi (2016), in Rahul Anand and Paul Cashin (eds.), Taming Indian Inflation, pp. 115–129. International Monetary Fund, Washington, DC.

Abstract: This paper examines the long-run relationship between consumer price index industrial workers (CPI-IW) inflation and GDP growth in India. We collect data on a sample of 14 Indian states over the period 1989–2013, and use the cross-sectionally augmented distributed lag (CS-DL) approach of Chudik et al. (2013) as well as the standard panel ARDL method for estimation––to account for cross-state heterogeneity and dependence, dynamics and feedback effects. Our findings suggest that, on average, there is a negative long-run relationship between inflation and economic growth in India. We also find statistically-significant inflation-growth threshold effects in the case of states with persistently-elevated inflation rates of above 5.5 percent. This suggest the need for the Reserve Bank of India to balance the short-term growth-inflation trade-off, in light of the long-term negative effects on growth of persistently-high inflation.
JEL Classifications: C23, E31, O40.
Key Words: India, inflation, growth, threshold effects, cross-sectional heterogeneity and dependence.
IMF Working Paper Version: WP/14/222.
Media Coverage: The paper was featured in an article in the Mint newspaper (December 22, 2014).

·         Commodity Price Volatility and the Sources of Growth, with Tiago V. de V. Cavalcanti and Mehdi Raissi (2015), Journal of Applied Econometrics 30:6, pp. 857–873.

Abstract: This paper studies the impact of the level and volatility of the commodity terms of trade on economic growth, as well as on the three main growth channels: total factor productivity, physical capital accumulation, and human capital acquisition. We use the standard system GMM approach as well as a cross-sectionally augmented version of the pooled mean group (CPMG) methodology of Pesaran et al. (1999) for estimation. The latter takes account of cross-country heterogeneity and cross-sectional dependence, while the former controls for biases associated with simultaneity and unobserved country-specific effects. Using both annual data for 1970--2007 and five-year non-overlapping observations, we find that while commodity terms of trade growth enhances real output per capita, volatility exerts a negative impact on economic growth operating mainly through lower accumulation of physical capital. Our results indicate that the negative growth effects of commodity terms of trade volatility offset the positive impact of commodity booms; and export diversification of primary commodity abundant countries contribute to faster growth. Therefore, we argue that volatility, rather than abundance per se, drives the "resource curse" paradox.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C23, F43, O13, O40.
Key Words: Growth models, resource curse, commodity prices, volatility.
Data Supplement: Click here for the online data supplement to "Commodity Price Volatility and the Sources of Growth".
Data: Click here for the data used in this paper.
IMF Working Paper Version: WP/12/12.

·         The Differential Effects of Oil Demand and Supply Shocks on the Global Economy, with Paul Cashin, Maziar Raissi, and Mehdi Raissi (2014), Energy Economics 44, pp. 113–134.

Abstract: We employ a set of sign restrictions on the impulse responses of a Global VAR model, estimated for 38 countries/regions over the period 1979Q2-2011Q2, as well as bounds on impact price elasticities of oil supply and oil demand to discriminate between supply-driven and demand-driven oil-price shocks, and to study the time profile of their macroeconomic effects across a wide range of countries and real/financial variables. We show that the above identification scheme can greatly benefit from the cross-sectional dimension of the GVAR by providing a large number of additional cross-country sign restrictions and hence reducing the set of admissible models. The results indicate that the economic consequences of a supply-driven oil-price shock are very different from those of an oil-demand shock driven by global economic activity, and vary for oil-importing countries compared to energy exporters. While oil importers typically face a long-lived fall in economic activity in response to a supply-driven surge in oil prices, the impact is positive for energy-exporting countries that possess large proven oil/gas reserves. However, in response to an oil-demand disturbance, almost all countries in our sample experience long-run inflationary pressures, an increase in real output, a rise in interest rates, and a fall in equity prices.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, E17, F44, F47, Q41.
Key Words: Global VAR (GVAR), interconnectedness, global macroeconomic modeling, sign restrictions, impulse responses, international business cycle, oil-demand and oil-supply shocks.
Working Paper Version: March 18, 2014.
Media Coverage: The paper was featured in an IMF blog (iMFdirect) about the recent oil price slump by Rabah Arezki and Olivier Blanchard (December 22, 2014).

·         An Empirical Growth Model for Major Oil Exporters, with Hadi Salehi Esfahani and M. Hashem Pesaran (2014), Journal of Applied Econometrics 29:1, pp. 1–21.

Abstract: This paper develops a long-run output relation for a major oil exporting economy where the oil income to output ratio remains sufficiently high over a prolonged period. It extends the stochastic growth model developed in Binder and Pesaran (1999) by including oil exports as an additional factor in the capital accumulation process. The paper distinguishes between the two cases where the growth of oil income, g°, is less than the natural growth rate (the sum of the population growth, n, and the growth of technical progress, g), and when g° ≥ g+n. Under the former, the effects of oil income on the economy's steady growth rate will vanish eventually, whilst under the latter, oil income enters the long-run output equation with a coefficient which is equal to the share of capital if it is further assumed that the underlying production technology can be represented by a Cobb-Douglas production function. The long-run theory is tested using quarterly data on nine major oil economies. Overall, the test results support the long-run theory, with the existence of long-run relations between real output, foreign output and real oil income established for six of the nine economies considered.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, C53, E17, F43, F47, Q32.
Key Words: Growth models, long run and error correcting relations, major oil exporters, OPEC member countries, oil exports and foreign output shocks.
Working Paper Version: June 4, 2012.
Data and Microfit Files: Click here for the data as well as the list and equation files to transform the data and compute the statistics and results in "An Empirical Growth Model for Major Oil Exporters".

·         One Hundred Years of Oil Income and the Iranian Economy: A Curse or a Blessing?, with M. Hashem Pesaran (2014), in Parvin Alizadeh and Hassan Hakimian (eds.), Iran and the Global Economy: Petro Populism, Islam and Economic Sanctions. Routledge, London.

Abstract: This paper examines the impact of oil revenues on the Iranian economy over the past hundred years, spanning the period 1908-2010. It is shown that although oil has been produced in Iran over a very long period, its importance in the Iranian economy was relatively small up until the early 1960s. It is argued that oil income has been both a blessing and a curse. Oil revenues when managed appropriately are a blessing, but their volatility (which in Iran is much higher than oil price volatility) can have adverse effects on real output, through excessively high and persistent levels of inflation. Lack of appropriate institutions and policy mechanisms which act as shock absorbers in the face of high levels of oil revenue volatility have also become a drag on real output. In order to promote growth, policies should be devised to control inflation; to serve as shock absorbers negating the adverse effects of oil revenue volatility; to reduce rent seeking activities; and to prevent excessive dependence of government finances on oil income.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: E02, N15, Q32.
Key Words: Oil price volatility, oil income, rent seeking, inflation, macroeconomic policy.
Working Paper Version: February 16, 2013.

·         Oil Prices, External Income, and Growth: Lessons from Jordan, with Mehdi Raissi (2013), Review of Middle East Economics and Finance 9:2, pp. 99–131.

Abstract: This paper extends the long-run growth model of Esfahani et al. (2012) to a labor exporting country that receives large inflows of external income—the sum of remittances, FDI and general government transfers—from major oil-exporting economies. The theoretical model predicts real oil prices to be one of the main long-run drivers of real output. Using quarterly data between 1979 and 2009 on core macroeconomic variables for Jordan and a number of key foreign variables, we identify two long-run relationships: an output equation as predicted by theory and an equation linking foreign and domestic inflation rates. It is shown that real output in the long run is shaped by: (i) oil prices through their impact on external income and in turn on capital accumulation, and (ii) technological transfers through foreign output. The empirical analysis of the paper confirms the hypothesis that a large share of Jordan's output volatility can be associated with fluctuations in net income received from abroad. External factors, however, cannot be relied upon to provide similar growth stimuli in the future, and therefore it will be important to diversify the sources of growth in order to achieve a high and sustained level of income.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, C53, E17, F43, F47, Q32.
Key Words: Growth models, long run relations, Jordanian economy, remittances, FDI, oil price shocks, foreign output and inflation shocks, and error correcting relations.
IMF Working Paper Version: WP/11/291.

·         Oil Exports and the Iranian Economy, with Hadi Salehi Esfahani and M. Hashem Pesaran (2013), The Quarterly Review of Economics and Finance 53:3, pp. 221–237.

Abstract: This paper presents an error-correcting macroeconometric model for the Iranian economy estimated using a new quarterly data set over the period 1979Q1-2006Q4. It builds on a recent paper by the authors, Esfahani et al. (2015), which develops a theoretical long-run growth model for major oil exporting economies. The core variables included in this paper are real output, real money balances, inflation, exchange rate, oil exports, and foreign real output, although the role of investment and consumption are also analyzed in a sub-model. The paper finds clear evidence for the existence of two long-run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. The results show that real output in the long run is influenced by oil exports and foreign output. However, it is also found that inflation has a significant negative long-run effect on real GDP, which is suggestive of economic inefficiencies and is matched by a negative association between inflation and the investment-output ratio. Finally, the results of impulse responses show that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran's financial markets.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C32, C53, E17, F43, F47, Q32.
Key Words: Growth models, long-run relations, oil exporters, Iranian economy, oil price and foreign output shocks, and error-correcting relations.
Working Paper Version: July 4, 2012.
Data and Microfit Files: Click here for the raw data as well as the list and equation files to transform the data and compute the statistics and results in "Oil Exports and the Iranian Economy".
Translation into Persian: Oil Exports and the Iranian Economy (Persian)

·         Econometric Modelling of World Oil Supplies: Terminal Price and the Time to Depletion (2013), OPEC Energy Review 37:2, pp. 162–193.

Abstract: This paper develops a novel approach by which to identify the price of oil at the time of depletion; the so-called "terminal price" of oil. It is shown that while the terminal price is independent of both GDP growth and the price elasticity of energy demand, it is dependent on the world real interest rate and the total life-time stock of oil resources, as well as on the marginal extraction and scarcity cost parameters. The theoretical predictions of this model are evaluated using data on the cost of extraction, cumulative production, and proven reserves. The predicted terminal prices seem sensible for a range of parameters and variables, as illustrated by the sensitivity analysis. Using the terminal price of oil, we calculate the time to depletion, and determine the extraction and price profiles over the life-time of the resource. The extraction profiles generated seem to be in line with the actual production and the predicted prices are generally in line with those currently observed.
Arabic Abstract: Click here for the Abstract in Arabic.
JEL Classifications: C23, Q31, Q47.
Key Words: Oil prices and extraction, terminal price of oil, time to depletion, nonrenewable resources, oil demand estimations, and oil extraction costs.
Working Paper Version: January 13, 2013.

·         Inflation Differentials in the GCC: Does the Oil Cycle Matter?, with Oral H. Williams (2013), Middle East Development Journal 5:2, pp. 1–23 .

Abstract: This paper uses a pairwise approach to investigate the main factors that have been driving inflation differentials in the Gulf Cooperation Council (GCC) region for the past two decades. The results suggest that inflation differentials in the GCC are largely influenced by the oil cycle, mainly through the credit and fiscal channels. This implies that in order for the proposed monetary union to be successful, closer coordination of fiscal policies will be critical. The results also indicate that after controlling for cyclical factors, convergence increased even during the recent oil boom.
JEL Classifications: C32, C33, E31, E50.
Key Words: Inflation differentials, convergence, oil prices, panel data, pairwise approach, monetary union, and Gulf Cooperation Council (GCC) countries.
IMF Working Paper Version: WP/11/294.

·         Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis, with Tiago V. de V. Cavalcanti and Mehdi Raissi (2011), The Quarterly Review of Economics and Finance 51:4, pp. 305–318.

Abstract: This paper explores whether natural resource abundance is a curse or a blessing. To do so, we firstly develop a theory consistent econometric model, in which we show that there is a long run relationship between real income, the investment rate, and the real value of oil production. Secondly, we investigate the long-run (level) impacts of natural resource abundance on domestic output as well as the short-run (growth) effects. Thirdly, we explicitly recognize that there is a substantial cross-sectional dependence and cross-country heterogeneity in our sample, which covers 53 oil exporting and importing countries with very different historical and institutional backgrounds, and adopt the non-stationary panel methodologies developed by Pesaran (2006) and Pedroni (2000) for estimation. Our results, using the real value of oil production, rent or reserves as a proxy for resource endowment, reveal that oil abundance has a positive effect on both income levels and economic growth. While we accept that oil rich countries could benefit more from their natural wealth by adopting growth and welfare enhancing policies and institutions, we challenge the common view that oil abundance affects economic growth negatively.

JEL Classifications: C23, O13, O40, Q32.
Key Words:
Growth models, natural resource curse, cointegration, cross sectional dependence, common correlated effects, and oil.
Working Paper Version: July 10, 2011.
Data: Click here for the data used in this paper. You can replicate the results in Tables 4 and 8 by using these codes and amending the 4 lines relating to the folder that the data needs to be read from as well as the range and the relevant sheet of the .xls file provided.

·         Does Oil Abundance Harm Growth?, with Tiago V. de V. Cavalcanti and Mehdi Raissi (2011), Applied Economics Letters 18:12, pp.1181–1184.

Abstract: This article explores whether natural resource abundance is a curse. Our results reveal that oil abundance has a positive effect on both long-run income levels and short-run economic growth.
In the News: Benefits by the barrel

Persian Language Publications and Interviews

·         Interview in Persian, Tejarat-e Farda, Issue 109 (November 15, 2014), pp. 82–83.

·         High Inflation is Damaging Economic Growth in Iran, Donya-e Eqtesad, Issue 3056 (November 4, 2013).

·         Interview in Persian, Tejarat-e Farda, Issue 60 (October 5, 2013), pp. 96–97.

·         Interview in Persian, Tejarat-e Farda, Issue 29 (February 3, 2013), pp. 28-29.

·         Oil Exports and the Iranian Economy in Persian, a short Persian version of the article Oil Exports and the Iranian Economy originally published in The Quarterly Review of Economics and Finance 53:3, pp. 221–237.

·         Explaining the Role of Oil in the Iranian Economy, Tazehaye Eghtesad, Summer 1391 (2013), Issue 136, page 186.


Policy Notes and Blogs

·         Implications of the Current Low Oil Prices for MENA Countries, with Mehdi Raissi, The Forum (October 9, 2017).

·         The US Shale Oil Revolution Requires Major Reforms in the Macroeconomic Policy Frameworks and Institutions in the MENA Region, with Mehdi Raissi, ERF Policy Perspective (December 13, 2016).

·         Is Cheap Oil Really Good for the Global Economy?, with M. Hashem Pesaran, Financial Times (July 14, 2016).

·         Don’t Blame the Abundance of Oil! The Volatility in Oil Revenues Combined With Poor Governmental Responses to these Volatilities Drives the Resource Curse, Huffington Post Blog (November 25, 2015). Also posted on ERF Blogs (November 15, 2015).

·         Outward Spillovers from a GDP Shock in the GCC Region, with Paul Cashin and Mehdi Raissi (November 2012), Regional Economic Outlook: Middle East and Central Asia, International Monetary Fund.

·         Inward Spillovers to MENA Countries from a GDP Shock in G3 Countries, with Paul Cashin and Mehdi Raissi (November 2012), Regional Economic Outlook: Middle East and Central Asia, International Monetary Fund.

·         Recent Inflation Dynamics in GCC Countries, with Abdelhak S. Senhadji and Oral H. Williams (October 2010), Regional Economic Outlook: Middle East and Central Asia, International Monetary Fund.


Video of Talks and TV and Radio Interviews

·         Click here to see CCTV America's The Heat Program: El Niño and its Global Effects, on which Kamiar Mohaddes featured as a panelist.

·         Click here or here to listen to the BBC interview with Kamiar Mohaddes on Business Matters and World Business Report.

·         Click here for a video recording of a talk based on Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers at the ERF and Arab Fund conference on Monetary and Fiscal Institutions in Resource-Rich Arab Economies in Kuwait.

·         Click here for a video recording of a talk based on Fair Weather or Foul? The Macroeconomic Effects of El Niño at the 13th Research Meeting of the National Institute of Public Finance and Policy and the Department of Economic Affairs of the Ministry of Finance in India.

·         Click here to see the CCTV America interview with Kamiar Mohaddes.

Unpublished Papers

·         Researching the Graduate Labour Market : are the younger graduates on a lower growth path for their earnings compared with their older counterparts?’ Working Paper, Warwick Institute for Employment Research (IER), University of Warwick (2003).