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Natural-Resource Booms, Fiscal Rules and Welfare in a Small Open Economy

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  • Jair N. Ojeda

    ()

  • Julián A. Parra-Polanía

    ()

  • Carmiña O. Vargas

    ()

Abstract

This document analyzes the macroeconomic effects of a boom in a small-open economy’s natural-resource sector. We study the effects of this shock on the most important macroeconomic variables, the resource reallocation across sectors and on welfare under alternative fiscal rules. We employ a DSGE featuring three productive sectors (non-tradable, manufacturing and commodity goods), government and two types of consumers (Ricardian and non-Ricardian). Our results show that the natural-resource boom leads to an initial reduction of the manufacturing sector’s employment and production. The opposite temporal effect is obtained in the remaining two productive sectors. However, the effect on welfare is positive for all consumers since the boom increases consumption in all households. Finally, we find that a countercyclical fiscal rule leads to a slight increase in welfare compared with a balanced-budget rule.

Suggested Citation

  • Jair N. Ojeda & Julián A. Parra-Polanía & Carmiña O. Vargas, 2014. "Natural-Resource Booms, Fiscal Rules and Welfare in a Small Open Economy," BORRADORES DE ECONOMIA 011132, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:011132
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    References listed on IDEAS

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    Cited by:

    1. Sergey Ivashchenko, 2015. "A 5-sector DSGE Model of Russia," EUSP Department of Economics Working Paper Series Ec-01/15, European University at St. Petersburg, Department of Economics.
    2. Alberto Botta, 2014. "The Macroeconomics of a Financial Dutch Disease," DEM Working Papers Series 089, University of Pavia, Department of Economics and Management.
    3. Jane Korinek, 2015. "Managing the Minerals Sector: Implications for Trade from Peru and Colombia," OECD Trade Policy Papers 186, OECD Publishing.
    4. Alberto Botta & Antoine Godin & Marco Missaglia, 2016. "Finance, foreign (direct) investment and dutch disease: the case of Colombia," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(2), pages 265-289, August.
    5. Ojeda-Joya, Jair N. & Parra-Polanía, Julián A. & Vargas, Carmiña O., 2016. "Fiscal rules as a response to commodity shocks: A welfare analysis of the Colombian scenario," Economic Modelling, Elsevier, vol. 52(PB), pages 859-866.
    6. Carlos Ballesteros, 2016. "Mining and Energy Boom, Dutch Disease and Informality in Colombia: a DSGE Approach," DOCUMENTOS DE TRABAJO CIEF 015011, UNIVERSIDAD EAFIT.

    More about this item

    Keywords

    Fiscal rule; Natural-Resource Boom; Consumer Welfare; Equilibrium Model;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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