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External Shocks and Monetary Policy in a Small Open Oil Exporting Economy

  • Jean Pierre Allegret
  • Mohamed Tahar Benkhodja

To investigate the dynamic effect of external shocks on an oil exporting economy, we estimate, using Bayesian approach, a DSGE model based on the features of the Algerian economy. The main purpose is to investigate the dynamic effect of four external shocks (oil price shock, USD/EUR exchange rate shock, international inflation shock and international interest rate shock) and to examine the appropriate monetary policy strategy for Algerian economy, given its structural characteristics and the pattern of the external shocks. We analyze the impulse response functions of our external shocks according to alternative monetary rules. The welfare cost associated with each monetary policy rule has been considered. Our main findings show that, over the period 1990Q1-2010Q4, core inflation monetary rule allows better to stabilize both output and inflation. This rule also appears to be the best way to improve a social welfare.

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File URL: http://economix.fr/pdf/dt/2011/WP_EcoX_2011-39.pdf
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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2011-39.

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Length: 43 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:drm:wpaper:2011-39
Contact details of provider: Postal: 200 Avenue de la République, Bât. G - 92001 Nanterre Cedex
Web page: http://economix.fr
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  4. Mohamed Tahar Benkhodja, 2011. "Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy," Working Papers 1134, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
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  15. Hafedh Bouakez & Nooman Rebei & Désiré Vencatachellum, 2008. "Optimal Pass-Through of Oil Prices in an Economy with Nominal Rigidities," Cahiers de recherche 0831, CIRPEE.
  16. Rajeev Dhawan & Karsten Jeske, 2007. "Taylor rules with headline inflation: a bad idea," Working Paper 2007-14, Federal Reserve Bank of Atlanta.
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