Oil Windfalls in Ghana: A DSGE Approach
We use a calibrated multi-sector DSGE model to analyze the likely impact of oil windfalls on the Ghanaian economy, under alternative fiscal and monetary policy responses. We distinguish between the short-run impact, associated with demand-related pressures, and the medium run impact on competitiveness and growth. The impact on inflation and the real exchange rate could be moderate, especially if the fiscal authorities smooth oil-related spending or increase public spendingâ€™s import content. However, a policy mix that results in both a fiscal expansion and the simultaneous accumulation of the foreign currency proceeds from oil as international reservesâ€”to offset the real appreciationâ€”would raise demand pressures and crowd-out the private sector. In the medium term, the negative impact on competitivenessâ€”resulting from â€Dutch Diseaseâ€ effectsâ€”could be small, provided public spending increases the stock of productive public capital. These findings highlight the role of different policy responses, and their interaction, for the macroeconomic impact of oil proceeds.
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