IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Inflation Dynamics in a Dutch Disease Economy

  • Somayeh Mardaneh

    ()

Registered author(s):

    In this paper the effect of foregin sector macro-variable on inflation dynamics and firms' pricing behaviour has been investigated in the context of a small open economy New Keynesian Phillips Curve. This curve is derived and estimated for a developing oil-exporting economy sick with Dutch Disease. This version of NKPC is an extention of Leith and Malley’s (2007) small open economy NKPC incorporating oil as a factor of production which is produced in the home country but its price is determined by the world market. Using GMM technique, this curve has been estimated for standard closed and open economy specifications of the Iranian economy, that according to the emiprical evidence suffers from Dutch Disease. Introducing open economy elements produces three differences in the estimation compared to closed version. First, the degree of price stickiness and the fraction of backward-looking firms decrease. Second, the degree of substitutability is close to unity. Third, the forward-looking behaviour gains ground while the backward-looking behaviour becomes less important. Moreover, the significant estimates of the marginal cost coefficient confirm the importance of the real marginal cost in explaining inflation dynamics in the Iranian economy.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp12-25.pdf
    Download Restriction: no

    Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/25.

    as
    in new window

    Length:
    Date of creation: Nov 2012
    Date of revision:
    Handle: RePEc:lec:leecon:12/25
    Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
    Phone: +44 (0)116 252 2887
    Fax: +44 (0)116 252 2908
    Web page: http://www2.le.ac.uk/departments/economics
    Email:


    More information through EDIRC

    Order Information: Web: http://www2.le.ac.uk/departments/economics/research/discussion-papers Email:


    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Balazs Egert & Carol Leonard, 2008. "Dutch Disease Scare in Kazakhstan: Is it real?," Open Economies Review, Springer, vol. 19(2), pages 147-165, April.
    2. Willem H. Buiter & Douglas D. Purvis, 1980. "Oil, Disinflation, and Export Competitiveness: A Model of the "Dutch Disease"," NBER Working Papers 0592, National Bureau of Economic Research, Inc.
    3. Mohamed Tahar Benkhodja, 2011. "Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy," Working Papers halshs-00654511, HAL.
    4. Fabio Rumler, 2005. "Estimates of the Open Economy New Keynesian Phillips Curve for Euro Area Countries," Working Papers 102, Oesterreichische Nationalbank (Austrian Central Bank).
    5. Collier, Paul & Hoeffler, Anke, 2000. "Greed and grievance in civil war," Policy Research Working Paper Series 2355, The World Bank.
    6. Matsuyama, Kiminori, 1992. "Agricultural productivity, comparative advantage, and economic growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 317-334, December.
    7. Dées, Stéphane & di Mauro, Filippo & Pesaran, Hashem & Smith, Vanessa, 2005. "Exploring the international linkages of the euro area: a global VAR analysis," Working Paper Series 0568, European Central Bank.
    8. Campbell Leith & Jim Malley, 2002. "Estimated Open Economy New Keynesian Phillips Curves for the G7," Working Papers 2002_8, Business School - Economics, University of Glasgow.
    9. Jordi Gali & Mark Gertler & David Lopez-Salido, 2005. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," NBER Working Papers 11788, National Bureau of Economic Research, Inc.
    10. Argia M. Sbordone, 2008. "Globalization and inflation dynamics: the impact of increased competition," Staff Reports 324, Federal Reserve Bank of New York.
    11. Egil Matsen & Ragnar Torvik, 2002. "Optimal Dutch Disease," Working Paper Series 2703, Department of Economics, Norwegian University of Science and Technology.
    12. Jean-Philippe Stijns, 2003. "An Empirical Test of the Dutch Disease Hypothesis using a Gravity Model of Trade," International Trade 0305001, EconWPA.
    13. Sbordone, A.M., 1998. "Prices and Unit Labor Costs: a New Test of Price Stickiness," Papers 653, Stockholm - International Economic Studies.
    14. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
    15. Rudd, Jeremy & Whelan, Karl, 2005. "New tests of the new-Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1167-1181, September.
    16. Francesco Caselli & Tom Cunningham, 2009. "Leader behaviour and the natural resource curse," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 628-650, October.
    17. Valadkhani, Abbas, 2006. "Unemployment Conundrum in Iran," Economics Working Papers wp06-15, School of Economics, University of Wollongong, NSW, Australia.
    18. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
    19. Michael Bruno & Jeffrey Sachs, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," NBER Working Papers 0852, National Bureau of Economic Research, Inc.
    20. Esfahani, Hadi Salehi & Mohaddes, Kamiar & Pesaran, M. Hashem, 2013. "Oil exports and the Iranian economy," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(3), pages 221-237.
    21. Kamas, Linda, 1986. "Dutch disease economics and the Colombian export boom," World Development, Elsevier, vol. 14(9), pages 1177-1198, September.
    22. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    23. Fardmanesh, Mohsen, 1991. "Dutch disease economics and oil syndrome: An empirical study," World Development, Elsevier, vol. 19(6), pages 711-717, June.
    24. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
    25. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
    26. Batini, Nicoletta & Jackson, Brian & Nickell, Stephen, 2005. "An open-economy new Keynesian Phillips curve for the U.K," Journal of Monetary Economics, Elsevier, vol. 52(6), pages 1061-1071, September.
    27. Bruno, Michael & Sachs, Jeffrey, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 845-59, Special I.
    28. Gunnar Bardsen & Eilev S. Jansen & Ragnar Nymoen, 2004. "Econometric Evaluation of the New Keynesian Phillips Curve," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 671-686, 09.
    29. Usui, Norio, 1996. "Policy adjustments to the oil boom and their evaluation: The Dutch disease in Indonesia," World Development, Elsevier, vol. 24(5), pages 887-900, May.
    30. Kirill Sosunov & Oleg Zamulin, 2007. "Monetary Policy in an Economy Sick with Dutch Disease," Working Papers w0101, Center for Economic and Financial Research (CEFIR).
    31. Hans Genberg & LaurentL. Pauwels, 2005. "An Open-Economy New Keynesian Phillips Curve: Evidence From Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 10(2), pages 261-277, 06.
    32. Bonato Leo, 2008. "Money and Inflation in the Islamic Republic of Iran," Review of Middle East Economics and Finance, De Gruyter, vol. 4(1), pages 41-58, January.
    33. Fardmanesh, Mohsen, 1990. "Terms of trade shocks and structural adjustment in a small open economy : Dutch disease and oil price increases," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 339-353, November.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:lec:leecon:12/25. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mrs. Alexandra Mazzuoccolo)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.