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The Dutch Disease in Reverse: Iceland's Natural Experiment

  • Thorvaldur Gylfason
  • Gylfi Zoega
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    Abundant natural resources brought Iceland a systemically overvalued currency, with adverse effects on the secondary tradable sector. During 2003-08 another national treasure the sovereign's AAA rating, was used to attract foreign capital, elevating the real exchange rate even further. The financial collapse in 2008 left the country with a large foreign debt without the possibility of rollovers in international capital markets. This offset some of the effect of the natural resources on the real exchange rate; in effect, this was the Dutch disease in reverse as witnessed, in particular, by a massive increase in the number of tourists in recent years.

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    File URL: http://www.oxcarre.ox.ac.uk/files/OxCarreRP2014138.pdf
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    Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 138.

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    Date of creation: 2014
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    Handle: RePEc:oxf:oxcrwp:138
    Contact details of provider: Postal: Manor Road, Oxford, OX1 3UQ
    Web page: http://www.oxcarre.ox.ac.uk/
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