Oil price shocks lead to inflation and economic decline in oil-exporting countries.
Oil-exporting countries are heavily impacted by unexpected changes in oil prices, affecting their economies. A new study used a model to analyze how oil price shocks affect economic variables in Iran. Different scenarios were tested, showing that when oil prices rise, it leads to more money in circulation, causing inflation to increase. Additionally, the country's currency value drops, making it less competitive globally. The study suggests that using sovereign wealth funds could help lessen the impact of oil price shocks on these countries.