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Monetary Policy and Economic Performance in Resource Dependent Economies

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  • Raimundo Soto
  • Bassem Kamar

Abstract

There is ample consensus that monetary policy plays a key role in fostering economic growth and avoiding the costs of chronic inflation. Prudential and transparent monetary policies –in conjunction with budget-balanced fiscal policies—are universally recommended as a sound macroeconomic stance. While these recommendations may have general validity for non-resource based economies, their applicability to resource-rich economies is unclear. Resource-rich countries will not be disciplined by these constraints. On one hand, government financing is hardly a limitation when resources are abundant and countercyclical fiscal policy is often unavailable. On the other hand, because resource-based economies are quite sensitive to fluctuations in commodity prices, exchange rate and monetary policy often fail to stabilize the economy when needed. This paper explores and quantifies the role of monetary policy on economic performance in resource-based economies, with a particular focus on Middle East economies. We consider two dimensions of performance: long-run economic growth and price instability (inflation). A crucial component in our study is to assess the role of exchange rate regimes and their interplay with monetary and fiscal policies. To our knowledge, economic research has largely neglected the impact of the choice of exchange rate regimes and the conduct of monetary policy on economic performance in resource based economies.

Suggested Citation

  • Raimundo Soto & Bassem Kamar, 2015. "Monetary Policy and Economic Performance in Resource Dependent Economies," Documentos de Trabajo 462, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:462
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    More about this item

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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