Monetary policy and the Dutch disease effect in an oil exporting economy

Mohamed Benkhodja

International Economics, 2014, issue 138, 78–102

Abstract: In this paper, we build a Multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to investigate the impact of both windfall (an increase in oil price) and boom (an increase in oil resource) on an oil exporting economy. Our model is built to see if the two oil shocks (windfall and boom) generate, in the same proportion, a Dutch disease effect. Our main findings show that the Dutch disease effect under its two main mechanisms, namely spending effect and resource-movement effect, occurs only in the case of flexible wages and sticky prices, when exchange rate is fixed. We also compare the source of fluctuations that leads to a strong effect in term of de-industrialization. We conclude that the windfall leads to a stronger effect than a boom. Finally, the choice of flexible exchange rate regime helps to improve welfare.

Keywords: Monetary policy; Dutch disease; Oil prices; Small open economy; DSGE (search for similar items in EconPapers)
JEL-codes: E52 F41 Q40 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2014-q2-138-5

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