Advanced Search
MyIDEAS: Login to save this article or follow this journal

Optimal exchange rate policy for a small oil-exporting country: A dynamic general equilibrium perspective

Contents:

Author Info

  • Al-Abri, Almukhtar Saif

Abstract

This paper examines the choice of optimal exchange rate regime for an oil-exporting small open economy using a welfare-based model. The paper extends the standard New Keynesian Small Open Economy model to include three countries: a small oil-exporting country and two large foreign countries. The model also features three sectors: traded, non-traded, and primary-commodity (crude-oil). The sources of uncertainty are random monetary (demand), productivity (real), and real oil price (supply) shocks. Despite the absence of a non-oil traded sector in this primary-commodity economy, the welfare analysis suggests that flexible exchange rate regimes can reduce external shocks and consumption volatility given certain caveats about pricing-schemes. The analysis also suggests that a basket peg is more welfare-improving than a unilateral peg, as higher volatility of the anchor currency reduces consumer welfare.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0264999313003763
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 36 (2014)
Issue (Month): C ()
Pages: 88-98

as in new window
Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:88-98

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Oil-exporting countries; Exchange rate regimes; New Keynesian Small Open Economy model; Welfare analysis; Primary-commodity economy;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Frankel, Jeffrey A., 2010. "The Natural Resource Curse: A Survey," Scholarly Articles 4454156, Harvard Kennedy School of Government.
  2. Michael Devereux & Charles Engel, 2000. "Monetary Policy in the Open Economy Revisited: Price Setting and Exchange Rate Flexibiity," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 0016, Department of Economics at the University of Washington.
  3. Tovar, Camilo Ernesto, 2008. "DSGE Models and Central Banks," Economics Discussion Papers 2008-30, Kiel Institute for the World Economy.
  4. Lane, Philip R., 1999. "The New Open Economy Macroeconomics: a Survey," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2115, C.E.P.R. Discussion Papers.
  5. Maurice Obstfeld & Kenneth Rogoff, 1999. "New Directions for Stochastic Open Economy Models," NBER Working Papers 7313, National Bureau of Economic Research, Inc.
  6. Svensson, Lars E.O., 1998. "Inflation Targeting as a Monetary Policy Rule," Seminar Papers, Stockholm University, Institute for International Economic Studies 646, Stockholm University, Institute for International Economic Studies.
  7. Brad Setser, 2007. "The Case for Exchange Rate Flexibility in Oil-Exporting Economies," Policy Briefs PB07-8, Peterson Institute for International Economics.
  8. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  9. Corsetti, Giancarlo & Pesenti, Paolo, 2002. "International Dimensions of Optimal Monetary Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3349, C.E.P.R. Discussion Papers.
  10. Jordi Gal� & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  11. Lars E.O. Svensson & Michael Woodford, 2001. "Indicator Variables for Optimal Policy under Asymmetric Information," NBER Working Papers 8255, National Bureau of Economic Research, Inc.
  12. Yousefi, Ayoub & Wirjanto, Tony S., 2003. "Exchange rate of the US dollar and the J curve: the case of oil exporting countries," Energy Economics, Elsevier, Elsevier, vol. 25(6), pages 741-765, November.
  13. Tas, Bedri Kamil Onur & Togay, Selahattin, 2010. "Optimal monetary policy regime for oil producing developing economies: Implications for post-war Iraq," Economic Modelling, Elsevier, Elsevier, vol. 27(5), pages 1324-1336, September.
  14. Helge Berger & Henrik Jensen & Guttorm Schjelderup, 2001. "To Peg or Not To Peg? A Simple Model of Exchange Rate Regime Choice In Small Economies," CESifo Working Paper Series 468, CESifo Group Munich.
  15. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2007. "Evaluating An Estimated New Keynesian Small Open Economy Model," Working Paper Series 203, Sveriges Riksbank (Central Bank of Sweden).
  16. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  17. Anna Kormilitsina, 2011. "Oil Price Shocks and the Optimality of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 199-223, January.
  18. Margarida Duarte, 2004. "Monetary policy and the adjustment to country-specific shocks," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Spr, pages 21-40.
  19. Frankel, Jeffrey A., 2005. "Peg the export price index: A proposed monetary regime for small countries," Journal of Policy Modeling, Elsevier, Elsevier, vol. 27(4), pages 495-508, June.
  20. Jay, Squalli, 2011. "Is the dollar peg suitable for the largest economies of the Gulf Cooperation Council?," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 21(4), pages 496-512, October.
  21. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2008. "Do Terms of Trade Drive Real Exchange Rates? Comparing Oil and Commodity Currencies," Working Papers 2008-32, CEPII research center.
  22. Habib, Maurizio Michael & Stráský, Jan, 2008. "Oil exporters: in search of an external anchor," Working Paper Series, European Central Bank 0958, European Central Bank.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:88-98. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.