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Monetary policy and the Dutch disease effect in an oil exporting economy

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  • Mohamed Tahar Benkhodja

Abstract

In this paper, we build a Multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to investigate the impact of both windfall (an increase in oil price) and boom (an increase in oil resource) on an oil exporting economy. Our model is built to see if the two oil shocks (windfall and boom) generate, in the same proportion, a Dutch disease effect. Our main findings show that the Dutch disease effect under its two main mechanisms, namely spending effect and resource-movement effect, occurs only in the case of flexible wages and sticky prices, when exchange rate is fixed. We also compare the source of fluctuations that leads to a strong effect in term of de-industrialization. We conclude that the windfall leads to a stronger effect than a boom. Finally, the choice of flexible exchange rate regime helps to improve welfare.

Suggested Citation

  • Mohamed Tahar Benkhodja, 2014. "Monetary policy and the Dutch disease effect in an oil exporting economy," International Economics, CEPII research center, issue 138, pages 78-102.
    • Handle: RePEc:cii:cepiie:2014-q2-138-5
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    Cited by:

    1. Chuku Chuku, 2020. "Monetary policy options for managing resource revenue shocks when fiscal policy is laissez-faire," Economic Change and Restructuring, Springer, vol. 53(1), pages 113-138, February.
    2. Andreyev, M. & Polbin, A., 2019. "Studying the financial accelerator effect in a two-sector DSGE model for an exportoriented economy," Journal of the New Economic Association, New Economic Association, vol. 44(4), pages 12-49.
    3. Dobronravova, Elizaveta (Добронравова, Елизавета), 2018. "Monetary Policy Peculiarities in Countries with Natural Resources, with Significant Changes in Terms of Trade [Особенности Монетарной Политики В Странах, Наделенных Природными Ресурсами, При Значит," Working Papers 031811, Russian Presidential Academy of National Economy and Public Administration.
    4. Chuku Chuku, 2016. "Evaluating monetary policy options for managing resource revenue shocks when fiscal policy is laissez-faire: Application to Nigeria," WIDER Working Paper Series wp-2016-45, World Institute for Development Economic Research (UNU-WIDER).
    5. Jean-Pierre Allegret & Mohamed Tahar Benkhodja, 2015. "External Shocks and Monetary Policy in an Oil Exporting Economy," Post-Print hal-01385986, HAL.
    6. Chuku Chuku, 2016. "Evaluating monetary policy options for managing resource revenue shocks when fiscal policy is laissez-faire: Application to Nigeria," WIDER Working Paper Series 045, World Institute for Development Economic Research (UNU-WIDER).
    7. Suliman Zakaria S. Abdalla, 2014. "The Impact of Oil Price Fluctuations on the Sudanese Stock Market Performance," Working Papers 887, Economic Research Forum, revised Dec 2014.
    8. Hansen, James & Gross, Isaac, 2018. "Commodity price volatility with endogenous natural resources," European Economic Review, Elsevier, vol. 101(C), pages 157-180.
    9. Allegret, Jean Pierre & Benkhodja, Mohamed Tahar, 2015. "External shocks and monetary policy in an oil exporting economy (Algeria)," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 652-667.
    10. Jean-Pierre Allegret & Mohamed Tahar Benkhodja & Tovonony Razafindrabe, 2018. "Monetary Policy, Oil Stabilization Fund and the Dutch Disease," Working Papers hal-01796312, HAL.
    11. Oladunni, Sunday, 2020. "Oil Price Shocks and Macroeconomic Dynamics in an Oil-Exporting Emerging Economy: A New Keynesian DSGE Approach," MPRA Paper 104551, University Library of Munich, Germany, revised 12 Jun 2020.
    12. Chuku Chuku & Jacob Oduor & Anthony Simpasa & Peter Mwanakatwe, 2019. "Working Paper 318 - A DGE Model for Growth and Development Planning: Malawi," Working Paper Series 2444, African Development Bank.
    13. Drago Bergholt, 2014. "Monetary Policy in Oil Exporting Economies," Working Papers No 5/2014, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    14. Hossein Tavakolian & Hamed Ghiaie, 2019. "Optimal Inflation Targeting in a Dual-Exchange Rate Oil Economy," THEMA Working Papers 2019-09, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    15. Animashaun, Jubril & Wossink, Ada, 2024. "How do households cope during aggregate shocks? Evidence from the 2009–2015 oil crisis in Nigeria," Resources Policy, Elsevier, vol. 95(C).
    16. Amiri, Hossein & Sayadi, Mohammad & Mamipour, Siab, 2021. "Oil Price Shocks and Macroeconomic Outcomes; Fresh Evidences from a scenario-based NK-DSGE analysis for oil-exporting countries," Resources Policy, Elsevier, vol. 74(C).
    17. Ghiaie, Hamed & Tabarraei, Hamid Reza & Tavakolian, Hossein, 2022. "Alternative monetary policy regimes in an oil-exporting economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 161-177.
    18. Mustapha, Ishaq Muhammad & Masih, Mansur, 2016. "Dutch disease or Nigerian disease: a prima facie? New evidence from ARDL bound test analysis," MPRA Paper 69767, University Library of Munich, Germany.

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    More about this item

    Keywords

    Monetary policy; Dutch disease; Oil prices; Small open economy; DSGE;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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