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

Mohamed Benkhodja

No 1134, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: 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.

Keywords: Monetary Policy; Dutch Disease; Oil Prices; Small Open Economy (search for similar items in EconPapers)
JEL-codes: E52 F41 Q40 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-cba, nep-ene, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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ftp://ftp.gate.cnrs.fr/RePEc/2011/1134.pdf (application/pdf)

Related works:
Working Paper: Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy (2011)
Working Paper: Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy (2011)
Working Paper: Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1134

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