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The Macroeconomic Effects of Natural Resource Extraction: Applications to Papua New Guinea

Author

Listed:
  • Mr. Suman S Basu
  • Jan Gottschalk
  • Mr. Werner Schule
  • Mr. Nikhil Vellodi
  • Ms. Susan S. Yang

Abstract

To investigate the effects on Papua New Guinea’s economy of substantial liquified natural gas revenues arriving in 2015, we employ a model to examine the macroeconomic effects of a scalingup of natural resource windfall revenues and the implications for a variety of policy responses. The model is a multi-sector dynamic stochastic general equilibrium (DSGE) model, and features components that allow for a detailed study of the effects of both fiscal and monetary policy in response to a positive shock to the mineral resource value of a country. The model contains tradable, non-tradable, and mining sectors, as well as an independent central bank and fiscal authority. We calibrate the model to the current economy of Papua New Guinea and run a suite of policy simulations. We find that macroeconomic effects from a resource boom typically associated with Dutch Disease effects such as a real appreciation and a fall in tradable sector production stem largely from the non-tradable component of government spending. The central bank can offset the real appreciation, but not without crowding out the private sector. A sovereign wealth fund (SWF), combined with a smooth capital spending path, entails the best means of dealing with macroeconomic volatility and maintaining a stable fiscal regime.

Suggested Citation

  • Mr. Suman S Basu & Jan Gottschalk & Mr. Werner Schule & Mr. Nikhil Vellodi & Ms. Susan S. Yang, 2013. "The Macroeconomic Effects of Natural Resource Extraction: Applications to Papua New Guinea," IMF Working Papers 2013/138, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2013/138
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    References listed on IDEAS

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    Cited by:

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    2. Emmanuel Olusegun STOBER, 2016. "Crude Oil Price Shocks And Macroeconomic Behavior In Nigeria," Journal of Social and Economic Statistics, Bucharest University of Economic Studies, vol. 5(1), pages 56-66, JULY.

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