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Commodity price volatility with endogenous natural resources

James Hansen and Isaac Gross

European Economic Review, 2018, vol. 101, issue C, 157-180

Abstract: Natural resource reserves are exogenous in models of small commodity exporters. Changes in the stock of reserves play no role in the macroeconomy including in business cycle volatility, trade dynamics or exchange rate volatility. We consider richer supply dynamics and model exploration and depletion. We show that an endogenous supply of reserves is important for capturing the stylised facts associated with commodity price shocks including a commodity currency, the crowding-out of non-commodity activity (Dutch-Disease) and a volatile business cycle.

Keywords: Commodity currencies; commodity prices; Dutch Disease; non-renewable resources; optimal policy (search for similar items in EconPapers)
JEL-codes: E63 F41 Q33 Q38 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.euroecorev.2017.10.006

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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