Oil Price Shocks and Macroeconomic Dynamics in an Oil-Exporting Emerging Economy: A New Keynesian DSGE Approach

Sunday Oladunni

MPRA Paper from University Library of Munich, Germany

Abstract: The global oil dynamics has significant implications for both oil exporting and importing small open economies. However, much of the literature on oil shocks is oriented towards advanced oil-importing economies. Micro-founded studies that explore the effects of oil shocks from the standpoint of oil-endowed emerging economies are rather sparse, compared to the preponderance of studies on developed oil importers and exporters. Thus, resulting to a consequential knowledge gap on oil price transmission mechanism and a limited appreciation of the growing policy dilemmas in these economies. In addition, we consider a positive oil price shock to uncover the extent to which oil price increase is positive for the economy. The paper, therefore, sets up a new Keynesian dynamic stochastic general equilibrium (DSGE) model to study how an oil price shock impact macroeconomic aggregates in an oil-rich emerging economy. The typical small open economy model is enriched with an export-oriented oil firm, a multi-sector foreign production and a non-oil domestic firm. The model is closed with exchange rate-augmented interest rate rule, and it is calibrated for Nigeria, an important oil producer. Macroeconomic responses, sequel to a simulated positive oil price shock, reveal evidence of Dutch disease and the operation of the Harrod-Balassa-Samuelson effect. We find a compelling need for oil-endowed emerging economies to address these phenomena by ensuring a robust non-oil sector with limited exposure to the vagaries of oil price oscillation.

Keywords: Oil Price; DSGE Model; Macroeconomic Dynamics; Emerging Oil Exporter (search for similar items in EconPapers)
JEL-codes: E32 E37 E39 (search for similar items in EconPapers)
Date: 2020-03-13, Revised 2020-06-12
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-ene and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in CBN Journal of Applied Statistics 1.11(2020): pp. 1-34

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:104551

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