Monetary Policy Rule, Exchange Rate Regime, and Fiscal Policy Cyclicality in a Developing Oil Economy

Aliya Algozhina

No 49, Dynare Working Papers from CEPREMAP

Abstract: This paper constructs a dynamic stochastic general equilibrium model of joint monetary and fiscal policy for a developing oil economy to find an appropriate monetary rule combined with pro-/countercyclical and neutral fiscal stance based on a loss measure. The model captures a set of structural specifics: two monetary instruments–interest rate and foreign exchange interventions, two fiscal instruments–public consumption and public investment, two production sectors–oil and non-oil, and the two types of households–optimizers and rule-of-thumb households. It further includes a Sovereign Wealth Fund, the foreign debt of private sector via collateral constraint, and a world oil price shock. The loss measure is chosen as an equal summation of variances in in ation, output, and real exchange rate to be minimized by Taylor rule’s parameters in a small open economy. The foreign exchange interventions distinguish between managed and exible exchange rate regime. Fiscal policy cyclicality is referred to the oil output response of public consumption and public investment. Impulse response functions to the negative world oil price shock are analyzed at exible and rigid prices.

Keywords: oil economy; monetary policy; fiscal policy; exchange rate; oil price shock; interventions; SWF (search for similar items in EconPapers)
JEL-codes: E31 E52 E62 E63 F31 F41 H54 H63 Q33 Q38 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-05
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-ene, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Monetary policy rule, exchange rate regime, and fiscal policy cyclicality in a developing oil economy (2022)
Working Paper: Monetary Policy Rule, Exchange Rate Regime, and Fiscal Policy Cyclicality in a Developing Oil Economy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:dynare:049

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