Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy

In this paper, we compare, first, the impact of a windfall and a boom sectors on the economy of an oil exporting country and their welfare implications ; in a second step, we analyze how monetary policy should be conducted to insulate the economy from the main impact of these shocks, namely the Dutch Disease. To do so, we built a Multisector DSGE model with nominal and real rigidities. The main finding is that Dutch disease effect arise after spending and resource movement effects in the following cases : i) flexible prices and wages both in the case of a windfall and in the case of a boom ; i... Mehr ...

Verfasser: Benkhodja, Mohamed Tahar
Dokumenttyp: preprint
Erscheinungsdatum: 2011
Verlag/Hrsg.: HAL CCSD
Schlagwörter: Monetary Policy / Dutch Disease / Oil Prices / Small Open Economy / JEL: E - Macroeconomics and Monetary Economics/E.E5 - Monetary Policy / Central Banking / and the Supply of Money and Credit/E.E5.E52 - Monetary Policy / JEL: F - International Economics/F.F4 - Macroeconomic Aspects of International Trade and Finance/F.F4.F41 - Open Economy Macroeconomics / JEL: F - International Economics/F.F4 - Macroeconomic Aspects of International Trade and Finance/F.F4.F40 - General / [SHS.ECO]Humanities and Social Sciences/Economics and Finance
Sprache: Englisch
Permalink: https://search.fid-benelux.de/Record/base-27064044
Datenquelle: BASE; Originalkatalog
Powered By: BASE
Link(s) : https://shs.hal.science/halshs-00654511

In this paper, we compare, first, the impact of a windfall and a boom sectors on the economy of an oil exporting country and their welfare implications ; in a second step, we analyze how monetary policy should be conducted to insulate the economy from the main impact of these shocks, namely the Dutch Disease. To do so, we built a Multisector DSGE model with nominal and real rigidities. The main finding is that Dutch disease effect arise after spending and resource movement effects in the following cases : i) flexible prices and wages both in the case of a windfall and in the case of a boom ; ii) flexible wage and sticky price only in the case of a fixed exchange rate. In other cases, Dutch disease effect can be avoided if : prices are sticky and wages are flexible when the exchange rate is flexible ; iii) prices and wages are sticky whatever the objective of the central bank is in both cases : windfall and boom. We also compare the source of fluctuation that leads to Dutch disease effect and we conclude that the windfall leads to a strong e¤ect in terms of de-industrialization compared to a boom. The choice of flexible exchange rate regime also helps to improve welfare.