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Monetary policy and the Dutch disease effect in an oil exporting economy

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  • Mohamed Tahar Benkhodja

Abstract

In this paper, we build a Multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to investigate the impact of both windfall (an increase in oil price) and boom (an increase in oil resource) on an oil exporting economy. Our model is built to see if the two oil shocks (windfall and boom) generate, in the same proportion, a Dutch disease effect. Our main findings show that the Dutch disease effect under its two main mechanisms, namely spending effect and resource-movement effect, occurs only in the case of flexible wages and sticky prices, when exchange rate is fixed. We also compare the source of fluctuations that leads to a strong effect in term of de-industrialization. We conclude that the windfall leads to a stronger effect than a boom. Finally, the choice of flexible exchange rate regime helps to improve welfare.

Suggested Citation

  • Mohamed Tahar Benkhodja, 2014. "Monetary policy and the Dutch disease effect in an oil exporting economy," International Economics, CEPII research center, issue 138, pages 78-102.
  • Handle: RePEc:cii:cepiie:2014-q2-138-5
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    References listed on IDEAS

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    Cited by:

    1. Mustapha, Ishaq Muhammad & Masih, Mansur, 2016. "Dutch disease or Nigerian disease: a prima facie? New evidence from ARDL bound test analysis," MPRA Paper 69767, University Library of Munich, Germany.
    2. repec:eee:eecrev:v:101:y:2018:i:c:p:157-180 is not listed on IDEAS
    3. Jean-Pierre Allegret & Mohamed Tahar Benkhodja, 2015. "External Shocks and Monetary Policy in an Oil Exporting Economy," Post-Print hal-01385986, HAL.
    4. Jean-Pierre Allegret & Mohamed Benkhodja & Tovonony Razafindrabe, 2018. "Monetary Policy, Oil Stabilization Fund and the Dutch Disease," Working Papers hal-01796312, HAL.

    More about this item

    Keywords

    Monetary policy; Dutch disease; Oil prices; Small open economy; DSGE;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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