Oil Wealth and Economic Behavior: The Case of Venezuela, 1965-81

Reza Vaez-Zadeh
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Reza Vaez-Zadeh: International Monetary Fund

IMF Staff Papers, 1989, vol. 36, issue 2, 343-384

Abstract: A short-run macroeconomic model is estimated for Venezuela to examine the hypothesis that the availability of oil resources may entail a "confidence effect"--on perceived future incomes--that influences the expenditure and portfolio behavior of economic agents. The confidence effect is found to be empirically significant. Model simulations reveal that the impact of oil price changes on the level and variability of money demand, the balance of payments, and inflation are significantly more pronounced when this effect is present, with important implications for the size and structure of the needed policy interventions.

Date: 1989
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