Recently it has become popular among oil-producing countries to establish oil revenue funds, which are believed to stabilize the economy. However their effectiveness is still under debates. The objectives of this paper to determine what makes funds effective in oil-producing countries. The effect of different types of funds on correlation between exchange rates and oil export was tested using data of Azerbaijan, Kazakhstan and other 26 oil-producing countries. An effective fund must be able to de-link exchange rates from oil export. The empirical model is based on the findings theoretical model. The data was tested using panel and country-by-country unit roots and cointegration tests. The effectiveness of funds was tested using country-by-country estimation and panel data estimation. The results show that funds can stabilize exchange rates, however just the existence of funds does not guarantee their effectiveness. The results of panel data estimation provide a list of rules (such as accumulation rule, investment, reference oil price and percentage which accumulates funds) which make funds effective. The results show that the oil revenue fund of Azerbaijan is effective in stabilizing exchange rate, but this result is statistically not significant. The results show that the oil revenue fund of Kazakhstan is not effective in stabilizing exchange rate, this result is statistically not significant.
