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Constraints on the Design and Implementation of Monetary Policy in Oil Economies; The Case of Venezuela

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  • International Monetary Fund

Abstract

By definition, fiscal dominance impedes the effective implementation of any monetary strategy aimed at controlling inflation. Economies that exhibit oil dominance-a situation in which oil exports largely affect the main macroeconomic indicators-may also exhibit fiscal dominance. However, in this case, the standard indicators used to gauge the presence of fiscal dominance may fail to give the appropriate signals. The main purpose of this paper is twofold: i) to present a simple framework to analyze fiscal dominance in oil exporting countries and ii) to test the hypothesis of the presence of oil dominance/fiscal dominance (OD/FD) in the case of Venezuela. Using VAR and VEC models it is possible to conclude that there is relevant evidence supporting the validity of the OD/FD hypothesis.

Suggested Citation

  • International Monetary Fund, 2008. "Constraints on the Design and Implementation of Monetary Policy in Oil Economies; The Case of Venezuela," IMF Working Papers 08/142, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/142
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    Cited by:

    1. Jalali Naini, Ahmad Reza & Naderian, Mohammad Amin, 2017. "Oil Price Cycles, Fiscal Dominance and Counter-cyclical Monetary Policy in Iran," MPRA Paper 84480, University Library of Munich, Germany.
    2. Diego Restuccia, 2018. "The Monetary and Fiscal History of Venezuela 1960-2016," Working Papers tecipa-614, University of Toronto, Department of Economics.
    3. Jalali-Naini , Ahmad R. & Hemmaty , Maryam, 2013. "Threshold Effects in the Monetary Policy Reaction Function: Evidence from Central Bank of Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(1), pages 1-30, January.
    4. Ruslan Aliyev, 2012. "Monetary Policy in Resource-Rich Developing Economies," CERGE-EI Working Papers wp466, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Farhadi, Minoo & Islam, Md. Rabiul & Moslehi, Solmaz, 2015. "Economic Freedom and Productivity Growth in Resource-rich Economies," World Development, Elsevier, vol. 72(C), pages 109-126.

    More about this item

    Keywords

    Oil exports; Monetary policy; Oil exporting countries; Fiscal policy; Venezuela; Oil Economies; monetary base; inflation; central bank; monetary fund; Venezuela; Republica Bolivariana De;

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