Oil, Disinflation, and Export Competitiveness : A Model of the "Dutch Disease"
AbstractThis paper examines three possible sources of "de-industrialization" in an open economy : monetary disinflation, an increase in the international price of oil, and a domestic oil discovery. the analysis is conducted using a model which incorporates different speeds of adjustment in goods and asset markets ; domestic goods prices respond only sluggishly to excess demand while the exchange rate (and hence the price of imported goods) adjusts quickly. Monetary disinflation leads to reduce real balances, higher interest rates, and a lower nominal exchange rate. In the short-run this causes a real appreciation and a decline in domestic manufacturing output. Perhaps surprisingly, an increase in world oil prices can create similar effects even for a country which is a net exporter of oil. Although the direct effect of an oil price increase for such a country is an increase in the demand for the domestic manufacturing good, that effect may be swamped by real appreciation created by the increased demand for the home currency. This corresponds rather closely to the recent experiences of several oil and gas exporting countries, and is commonly referred to as the "Dutch-Disease". In our analysis, however, this is only a transitional phenomeon. Domestic oil discoveries, though necessarily finite in nature, generate permanent income effects in demand which last beyond the productive life of the new oil reserve. Initially, current income is above permanent income, leading to an improvement in the trade account ; this is eventually reversed when permanent income exceeds current income. A wide variety of output response patterns are possible.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 185.
Length: 40 pages
Date of creation: 1980
Date of revision:
Other versions of this item:
- Willem H. Buiter & Douglas D. Purvis, 1983. "Oil, Disinflation, and Export Competitiveness: A Model of the "Dutch Disease"," NBER Working Papers 0592, National Bureau of Economic Research, Inc.
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.:
- Wilson, Charles A, 1979. "Anticipated Shocks and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 639-47, June.
- Ronald E. Findlay & Carlos Alfredo Rodriguez, 1977. "Intermediate Imports and Macroeconomic Policy under Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 208-17, May.
- Rudiger Dornbusch, 1980. "Monetary Stabilization, Intervention and Real Appreciation," NBER Working Papers 0472, National Bureau of Economic Research, Inc.
- Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
- Michael Bruno & Jeffrey Sachs, 1979. "Macro-Economic Adjustment With Import Price Shocks: Real and Monetary Aspects," NBER Working Papers 0340, National Bureau of Economic Research, Inc.
- Rudiger Dornbusch, 1980. "Exchange Rate Economics: Where Do We Stand?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 143-206.
- Buiter, Willem H, 1978. "Short-run and Long-run Effects of External Disturbances under a Floating Exchange Rate," Economica, London School of Economics and Political Science, vol. 45(179), pages 251-72, August.
- Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Working Papers 05-34, Bank of Canada.
- Clemens, Marius & Fuhrmann, Wilfried, 2008.
"Rohstoffbasierte Staatsfonds: Theorie und Empirie
[Resource-based sovereign wealth funds]," MPRA Paper 16933, University Library of Munich, Germany.
- Katerina Kalcheva & Nienke Oomes, 2007.
"Diagnosing Dutch Disease: Does Russia Have the Symptoms?,"
IMF Working Papers
07/102, International Monetary Fund.
- Oomes , Nienke & Kalcheva, Katerina, 2007. "Diagnosing Dutch disease: Does Russia have the symptoms?," BOFIT Discussion Papers 7/2007, Bank of Finland, Institute for Economies in Transition.
- Hasanov, Fakhri, 2010.
"The impact of real oil price on real effective exchange rate: The case of Azerbaijan,"
33493, University Library of Munich, Germany.
- Fakhri Hasanov, 2010. "The Impact of Real Oil Price on Real Effective Exchange Rate: The Case of Azerbaijan," Discussion Papers of DIW Berlin 1041, DIW Berlin, German Institute for Economic Research.
- Fiona Atkins, 2000. "Revisiting the exchange rate debate: the Jamaican experience," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(1), pages 121-131.
- Hasanov Fakhri, 2011.
"Analyzing price level in a booming economy: the case of Azerbaijan,"
EERC Working Paper Series
11/02e, EERC Research Network, Russia and CIS.
- Hasanov, Fakhri, 2009. "Analyzing price level in a booming economy: the case of Azerbaijan," MPRA Paper 29555, University Library of Munich, Germany.
- Masanao Aoki & Sebastian Edwards, 1982. "Export Boom and Dutch Disease: A Dynamic Analysis," UCLA Economics Working Papers 269, UCLA Department of Economics.
- Michael Bruno & Jeffrey Sachs, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," NBER Working Papers 0852, National Bureau of Economic Research, Inc.
- Somayeh Mardaneh, 2012. "Inflation Dynamics in a Dutch Disease Economy," Discussion Papers in Economics 12/25, Department of Economics, University of Leicester.
- Singh, Rupinder & Laurila, Juhani, 1999. "Azerbaijan: Recent Economic Developments and Policy Issues in Sustainability of Growth," BOFIT Discussion Papers 5/1999, Bank of Finland, Institute for Economies in Transition.
- Cox, Grant M. & Harvie, Charles, 2010. "Resource price turbulence and macroeconomic adjustment for a resource exporter: A conceptual framework for policy analysis," Energy Economics, Elsevier, vol. 32(2), pages 469-489, March.
- Pentti J.K. Kouri, 1982. "Macroeconomics of Stagflation under Flexible Exchange Rates," NBER Working Papers 0868, National Bureau of Economic Research, Inc.
- Buiter, Willem H, 1999.
"The EMU and the NAMU: What is the Case for North American Monetary Union?,"
CEPR Discussion Papers
2181, C.E.P.R. Discussion Papers.
- Willem H. Buiter, 1999. "The EMU and the NAMU: What is the Case for North American Monetary Union?," Canadian Public Policy, University of Toronto Press, vol. 25(3), pages 285-305, September.
- Harvie, Charles & Cox, Grant M, 2009. "Resource Price Turbulence and Macroeconomic Adjustment for a Resource Exporter: a conceptual framework for policy analysis," Economics Working Papers wp09-06, School of Economics, University of Wollongong, NSW, Australia.
- Willem H. Buiter & Marcus H. Miller, 1982. "Monetary Policy and International Competitiveness," NBER Working Papers 0591, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Margaret Nash).
If references are entirely missing, you can add them using this form.