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The Short-run Impact of Oil Windfalls in Low-income Countries: A DSGE Approach-super- †

Author

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  • Jihad Dagher
  • Jan Gottschalk
  • Rafael Portillo

Abstract

We use a multi-sector dynamic stochastic general equilibrium (DSGE) model—calibrated to the Ghanaian economy—to analyse the short-term impact of oil windfalls in low-income countries (LICs) and the role of various fiscal and monetary policy responses. The model includes limited access to international capital markets, limited participation by residents in the domestic financial system and limited labour mobility across sectors, features that are pervasive in these countries. Relative to developed countries, oil windfalls are likely to have larger aggregate demand pressures. A policy of fiscal smoothing—associated with a sovereign wealth fund—can help achieve macroeconomic stability and improve welfare. On the other hand, accumulation of reserves in response to the windfall—without fiscal backing—can crowd out the private sector and reduce welfare. These findings highlight the importance of policy coordination for the macroeconomic effects of oil proceeds in LICs. Copyright 2012 , Oxford University Press.

Suggested Citation

  • Jihad Dagher & Jan Gottschalk & Rafael Portillo, 2012. "The Short-run Impact of Oil Windfalls in Low-income Countries: A DSGE Approach-super- †," Journal of African Economies, Centre for the Study of African Economies, vol. 21(3), pages 343-372, June.
    • Handle: RePEc:oup:jafrec:v:21:y:2012:i:3:p:343-372
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    File URL: http://hdl.handle.net/10.1093/jae/ejr052
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    Cited by:

    1. Mr. Andrew Berg & Mr. Rafael A Portillo & Mr. Edward F Buffie & Ms. Catherine A Pattillo & Luis-Felipe Zanna, 2012. "Public Investment, Growth, and Debt Sustainability: Putting together the Pieces," IMF Working Papers 2012/144, International Monetary Fund.
    2. Salifou Issoufou & Mr. Edward F Buffie & Mouhamadou Bamba Diop & Kalidou Thiaw, 2014. "Efficient Energy Investment and Fiscal Adjustment in Senegal," IMF Working Papers 2014/044, International Monetary Fund.
    3. 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.
    4. SENBETA, Sisay Regassa, 2013. "Informality and macroeconomic fluctuations: A small open economy New Keynesian DSGE model with dual labour markets," Working Papers 2013002, University of Antwerp, Faculty of Business and Economics.
    5. 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.
    6. Keyra Primus, 2016. "Fiscal Rules for Resource Windfall Allocation: The Case of Trinidad and Tobago," IMF Working Papers 2016/188, International Monetary Fund.
    7. Takyi, Paul Owusu & Leon-Gonzalez, Roberto, 2020. "Macroeconomic impact of fiscal policy in Ghana: Analysis of an estimated DSGE model with financial exclusion," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 239-260.
    8. Oliver Morrissey & Lars Spreng, 2020. "Macroeconomic management on becoming an African oil exporter," Discussion Papers 2020-03, University of Nottingham, CREDIT.
    9. Jean-Pierre Allegret & Mohamed Tahar Benkhodja & Tovonony Razafindrabe, 2018. "Monetary Policy, Oil Stabilization Fund and the Dutch Disease," Working Papers hal-01796312, HAL.
    10. 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.

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