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Reserves of Natural Resources in a Small Open Economy

Isaac Gross and James Hansen
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James Hansen: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper studies the effect of a shock to resource prices in a small open economy where the stock of natural resources is responsive to exploration activity, and where extraction reduces the future availability of reserves. We show that the effects of a resource price shock on resource investment, labour utilisation and extraction are all amplified in the presence of endogenous reserves. We also find that spillovers to broader economic activity, including changes in domestic production, non-resource exports and consumption, are all greater in the presence of exploration activity. However, we find that incorporating endogenous reserves does not fundamentally change the effects of a resource price shock on key price measures including consumer prices, the real exchange rate and domestic interest rates.

Keywords: natural resources; small open economy (search for similar items in EconPapers)
JEL-codes: F41 Q33 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-env, nep-int, nep-mac and nep-opm
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