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Oil Windfalls in Ghana

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Author Info

  • Jihad Dagher
  • Jan Gottschalk
  • Rafael Portillo
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    Abstract

    We use a calibrated multi-sector DSGE model to analyze the likely impact of oil windfalls on the Ghanaian economy, under alternative fiscal and monetary policy responses. We distinguish between the short-run impact, associated with demand-related pressures, and the medium run impact on competitiveness and growth. The impact on inflation and the real exchange rate could be moderate, especially if the fiscal authorities smooth oil-related spending or increase public spending’s import content. However, a policy mix that results in both a fiscal expansion and the simultaneous accumulation of the foreign currency proceeds from oil as international reserves—to offset the real appreciation—would raise demand pressures and crowd-out the private sector. In the medium term, the negative impact on competitiveness—resulting from â€Dutch Disease†effects—could be small, provided public spending increases the stock of productive public capital. These findings highlight the role of different policy responses, and their interaction, for the macroeconomic impact of oil proceeds.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/116.

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    Length: 36
    Date of creation: 01 May 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/116

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    Related research

    Keywords: Economic models; Exchange rate appreciation; Government expenditures; Nonoil sector; Oil production; Oil revenues; Reserves accumulation; inflation; monetary policy; central bank; foreign currency; aggregate demand; inflationary pressures; money balances; annual inflation; real money; inflation rate; monetary policy rule; increase in inflation; real wages; foreign exchange; open market operations; inflation targeting framework; price stability; monetary fund; inflation target; discretionary monetary policy; real interest rates; nominal variables; inflation targeting; monetary economics; average inflation rate; monetary policy reaction function; average inflation; price level; annual inflation rate; high inflation; inflation objective;

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    Cited by:
    1. Fadia Al Hajj & Gilles Dufrénot, & Kimiko Sugimoto & Romain Wolf, 2013. "Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Ghana, South Africa and the WAEMU," William Davidson Institute Working Papers Series wp1062, William Davidson Institute at the University of Michigan.
    2. Regassa Senbeta S., 2011. "How applicable are the New Keynesian DSGE models to a typical Low-Income Economy?," Working Papers 2011016, University of Antwerp, Faculty of Applied Economics.
    3. Senbeta, Sisay, 2011. "A small open economy New Keynesian model for a foreign exchange constrained economy," MPRA Paper 29996, University Library of Munich, Germany.
    4. Tsasa Vangu, Jean-Paul Kimbambu, 2014. "Diagnostic de la politique monétaire en Rép. Dém. Congo – Approche par l’Equilibre Général Dynamique Stochastique," Dynare Working Papers 38, CEPREMAP.

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