Monetary Policy in an Economy Sick with Dutch Disease

Kirill Sosunov and Oleg Zamulin
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Kirill Sosunov: Higher School of Economics
Authors registered in the RePEc Author Service: Kirill Sossounov

No w0101, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: The paper studies monetary policy in an economy, in which the manufacturing sector is ousted completely by the presence of a large natural resource industry. Thus, the economy produces only non-tradable goods, which can complement or substitute imported goods, and the primary shock to the economy comes from the fluctuations in the world price of the exported commodity. A model of such an economy is calibrated using parameters relevant for Russia, which is an example of an economy sick with Dutch Disease, and several conventional policy rules are considered. It is shown that in absence of a well-functioning fiscal stabilization fund, it may be optimal for monetary authorities to respond to the real exchange rate, as the Bank of Russia allegedly does, using purchases of foreign reserves as the policy instrument. The logic of these actions is to replace the absent fiscal stabilization policy. In case monetary policy is conducted using an interest rate instrument, there should be no reaction to the real exchange rate and only slight one - to inflation.

Keywords: Dutch disease; Monetary Policy; Russia (search for similar items in EconPapers)
JEL-codes: E52 F4 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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http://www.cefir.ru/papers/WP101.pdf (application/pdf)

Related works:
Working Paper: Monetary Policy in an Economy Sick with Dutch Disease (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cfr:cefirw:w0101

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