Managing the Impact of Resource Booms on the Real Effective Exchange Rate: The Role of Financial Sector Development

Johannes Herderschee and Luisa Zanforlin

No 2021/073, IMF Working Papers from International Monetary Fund

Abstract: Whereas most of the literature related to the so-called “resource curse” tends to emphasize on institutional factors and public policies, in this research we focus on the role of the financial sector, which has been surprisingly overlooked. We find that countries that have financial systems with more depth, as well as those that actively manage their central banks’ balance sheets experience less exchange-rate appreciation than countries that do not. We analyze the relationship between these two findings and suggest that they appear to follow separate mechanisms.

Keywords: Resource-Rich Countries; Financial Development; Monetary Policy; REER appreciation; credit vis-à-vis credit; monetary policy rate; balance sheet management policy; appreciation of the REER; nonrenewable resource wealth; gas resource; Financial sector development; Real effective exchange rates; Natural resources; Sterilization; Financial sector; Asia and Pacific (search for similar items in EconPapers)
Pages: 24
Date: 2021-03-12
New Economics Papers: this item is included in nep-fdg
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