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Monetary Policy in an Economy Sick with Dutch Disease

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  • Kirill Sosunov

    (Higher School of Economics)

  • Oleg Zamulin

    ()
    (New Economic School)

Abstract

The paper studies monetary policy in an economy, in which the manufacturing sector is ousted completely by the presence of a large natural resource industry. Thus, the economy produces only non-tradable goods, which can complement or substitute imported goods, and the primary shock to the economy comes from the fluctuations in the world price of the exported commodity. A model of such an economy is calibrated using parameters relevant for Russia, which is an example of an economy sick with Dutch Disease, and several conventional policy rules are considered. It is shown that in absence of a well-functioning fiscal stabilization fund, it may be optimal for monetary authorities to respond to the real exchange rate, as the Bank of Russia allegedly does, using purchases of foreign reserves as the policy instrument. The logic of these actions is to replace the absent fiscal stabilization policy. In case monetary policy is conducted using an interest rate instrument, there should be no reaction to the real exchange rate and only slight one - to inflation.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0101.

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Length: 28 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:cfr:cefirw:w0101

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Keywords: Dutch disease; Monetary Policy; Russia;

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References

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  1. Uribe, Martin, 2003. "Real exchange rate targeting and macroeconomic instability," Journal of International Economics, Elsevier, Elsevier, vol. 59(1), pages 137-159, January.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Thinking about monetary policy in Russia – a useful DSGE model?
    by Lars Christensen in The Market Monetarist on 2013-04-25 19:50:13
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Mohamed Tahar Benkhodja, 2011. "Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 1134, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
  3. Yulia Vymyatnina, 2014. "Spillover Effects in the Customs Union of Russia, Kazakhstan and Belarus," EcoMod2014 7160, EcoMod.
  4. Charemza, Wojciech & Makarova, Svetlana & Prytula, Yaroslav & Raskina, Julia & Vymyatnina, Yulia, 2009. "A small forward-looking inter-country model (Belarus, Russia and Ukraine)," Economic Modelling, Elsevier, Elsevier, vol. 26(6), pages 1172-1183, November.
  5. Duc Pham-Hi, 2014. "Shadow banking dynamics and learning behaviour," EcoMod2014 6920, EcoMod.
  6. Irina Khvostova & Alexander Larin & Anna Novak, 2014. "Euler equation with habits and measurement errors: estimates on Russian micro data," HSE Working papers, National Research University Higher School of Economics WP BRP 52/EC/2014, National Research University Higher School of Economics.
  7. Oxana A. Malakhovskaya & Alexey R. Minabutdinov, 2013. "Are commodity price shocks important? A Bayesian estimation of a DSGE model for Russia," HSE Working papers, National Research University Higher School of Economics WP BRP 48/EC/2013, National Research University Higher School of Economics.
  8. Ruslan Aliyev, 2012. "Monetary Policy in Resource-Rich Developing Economies," CERGE-EI Working Papers wp466, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  9. Karev, M., 2011. "Revealed Preferences of the Bank of Russia. Simulation Approach," Journal of the New Economic Association, New Economic Association, New Economic Association, issue 9, pages 72-97.
  10. Somayeh Mardaneh, 2012. "Inflation Dynamics in a Dutch Disease Economy," Discussion Papers in Economics, Department of Economics, University of Leicester 12/25, Department of Economics, University of Leicester.

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