Oil Windfalls, Fiscal Policy and Money Market Disequilibrium
AbstractIn this paper, we base our policy analyses and simulations on three different specifications of a DSGE model developed for a CIS oil rich country and check the impact of the oil windfalls. The first proposed specification is a classical one with a Taylor rule and the second one is a recently new specification with a money growth rule. Beside two familiar specifications, we propose a new specification which assumes a temporary money market disequilibrium in the short run. This disequilibrium is a result of the fiscal misbalance and (non-primary) pro-deficit policy pursued by the fiscal authority. We show that all three specifications allow the fiscal authority to act as the main actor in propagating and amplifying the effects of the oil price shocks to the rest of the economy. When an oil shock hits the economy, its first round effect operates through oil fund transfers to the budget. The second round effects result from an increase in government consumption and government investment expenditures, which augments public capital affecting total factor productivity (TFP) and production, as well as the aggregate demand. We also find that despite significant differences, all three specifications demonstrate similar response dynamics.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1051.
Date of creation: 15 Jun 2013
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Fiscal Policy; Oil Windfalls; Public investment; Market Disequilibrium; Oil rich country;
Find related papers by JEL classification:
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-23 (All new papers)
- NEP-DGE-2013-08-23 (Dynamic General Equilibrium)
- NEP-ENE-2013-08-23 (Energy Economics)
- NEP-MAC-2013-08-23 (Macroeconomics)
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