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The inflationary effects of stochastic resource revenues in resource-rich economies with less well-developed financial markets

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  • Hossein Kavand
  • J. Stephen Ferris

Abstract

This article develops a simple Dynamic Stochastic General Equilibrium (DSGE) model to illustrate how economies that face restrictions in their ability to alter both government spending and taxation in the short run and cannot borrow easily (perhaps because of incomplete internal capital markets) can find external fluctuations in resource revenues producing unexpected variations in their internal money supply and ultimately in their inflation rate. The main channels for these effects run through the government budget and through the country's balance of payments position. The model is calibrated to illustrate the case of Iran.

Suggested Citation

  • Hossein Kavand & J. Stephen Ferris, 2012. "The inflationary effects of stochastic resource revenues in resource-rich economies with less well-developed financial markets," Applied Economics, Taylor & Francis Journals, vol. 44(29), pages 3831-3840, October.
    • Handle: RePEc:taf:applec:44:y:2012:i:29:p:3831-3840
    DOI: 10.1080/00036846.2011.581222
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    References listed on IDEAS

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    1. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    2. Gyuhan Kim, 1995. "Exchange rate constraints and money control in Korea," Working Papers 1995-011, Federal Reserve Bank of St. Louis.
    3. Kamas, Linda, 1986. "The Balance of Payments Offset to Monetary Policy: Monetarist, Portfolio Balance, and Keynesian Estimates for Mexico and Venezuela," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 467-481, November.
    4. Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-467, May/June.
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    Cited by:

    1. Hossein Kavand & J. Stephen Ferris, 2012. "An Oil-Driven Endogenous Growth Model," Carleton Economic Papers 12-03, Carleton University, Department of Economics.

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