A structural VAR model of the Fiji Islands

A four-dimensional Structural Vector Auto-regression (SVAR) model is applied to investigate the implications of fuel imports and devaluation policy on Fiji's current account deficits and economic growth. The paper finds that short-term deterioration of the current account is partly due to higher fuel imports. The impulse response analysis shows that a standard deviation fall in Fiji's REER leads to a J-curve type response in the current account within a short period. Furthermore, fuel import demand and devaluations are found to have negative, but transitory, effect on economic growth.

► We examine the effects of fuel imports on Fiji's economy. ► A four-dimensional Structural Vector Auto-regression (SVAR) model is applied. ► The effects of fuel imports on current account and economic growth are studied. ► Short-term deterioration of current account is partly due to higher fuel imports. ► Fuel import demand and devaluations negatively affect economic growth.