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Recovery from Dutch Disease

Author

Listed:
  • Mardi Dungey
  • Renée Fry-McKibbin
  • Verity Todoroski
  • Vladimir Volkov

Abstract

Dutch Disease is thought to have ongoing negative effects on resource rich open economies. There is little evidence on how economies recover. We document the Australian case in the aftermath of the commodities price boom resulting from high input demand from China. We show that where the boom is contained in an export-oriented, small-employment sector of the economy and driven by external demand rather than price shocks, the economy recovers to its equilibrium relatively quickly. To show this we add a new tool to the SVAR toolbox which enables us to assess the source of deviations in the observed outcomes from an empirical steady-state implied by the model.

Suggested Citation

  • Mardi Dungey & Renée Fry-McKibbin & Verity Todoroski & Vladimir Volkov, 2017. "Recovery from Dutch Disease," CAMA Working Papers 2017-69, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2017-69
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2017-11/69_2017_dungey_fry-mckibbin_todoroski_volkov.pdf
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    Citations

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    Cited by:

    1. Warwick J McKibbin & Augustus J Panton, 2018. "Twenty-five Years of Inflation Targeting in Australia: Are There Better Alternatives for the Next Twenty-five Years?," RBA Annual Conference Volume (Discontinued), in: John Simon & Maxwell Sutton (ed.),Central Bank Frameworks: Evolution or Revolution?, Reserve Bank of Australia.
    2. Nadine Yamout, 2022. "Potential Output in a Commodity‐Exporting Economy," The Economic Record, The Economic Society of Australia, vol. 98(320), pages 42-62, March.
    3. Renée Fry-McKibbin & Rodrigo da Silva Souza, 2018. "Chinese resource demand or commodity price shocks: Macroeconomic effects for an emerging market economy," CAMA Working Papers 2018-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    Dutch Disease; Australia; China; SVAR; historical decomposition; empirical steady-state gap.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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