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Reserves of Natural Resources in a Small Open Economy

  • Isaac Gross

    (Reserve Bank of Australia)

  • James Hansen

    (Reserve Bank of Australia)

Registered author(s):

    This paper studies the effect of a shock to resource prices in a small open economy where the stock of natural resources is responsive to exploration activity, and where extraction reduces the future availability of reserves. We show that the effects of a resource price shock on resource investment, labour utilisation and extraction are all amplified in the presence of endogenous reserves. We also find that spillovers to broader economic activity, including changes in domestic production, non-resource exports and consumption, are all greater in the presence of exploration activity. However, we find that incorporating endogenous reserves does not fundamentally change the effects of a resource price shock on key price measures including consumer prices, the real exchange rate and domestic interest rates.

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    File URL: http://www.rba.gov.au/publications/rdp/2013/pdf/rdp2013-14.pdf
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    Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2013-14.

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    Date of creation: Dec 2013
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    Handle: RePEc:rba:rbardp:rdp2013-14
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    1. Ellis Connolly & David Orsmond, 2011. "The Mining Industry: From Bust to Boom," RBA Annual Conference Volume, in: Hugo Gerard & Jonathan Kearns (ed.), The Australian Economy in the 2000s Reserve Bank of Australia.
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    8. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    9. Ruy Lama & Juan Pablo Medina, 2012. "Is Exchange Rate Stabilization an Appropriate Cure for the Dutch Disease?," International Journal of Central Banking, International Journal of Central Banking, vol. 8(1), pages 5-46, March.
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    12. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
    13. Ellis Connolly & David Orsmond, 2011. "The Mining Industry: From Bust to Boom," RBA Research Discussion Papers rdp2011-08, Reserve Bank of Australia.
    14. Bodenstein, Martin & Erceg, Christopher J. & Guerrieri, Luca, 2011. "Oil shocks and external adjustment," Journal of International Economics, Elsevier, vol. 83(2), pages 168-184, March.
    15. Chari, V.V. & Kehoe, Patrick J. & McGrattan, Ellen R., 2008. "Are structural VARs with long-run restrictions useful in developing business cycle theory?," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1337-1352, November.
    16. Gianluca Benigno & Christoph Theonissen, 2006. "Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods," CEP Discussion Papers dp0771, Centre for Economic Performance, LSE.
    17. Adolfson, Malin & Laseen, Stefan & Linde, Jesper & Villani, Mattias, 2007. "Bayesian estimation of an open economy DSGE model with incomplete pass-through," Journal of International Economics, Elsevier, vol. 72(2), pages 481-511, July.
    18. Vanessa Rayner & James Bishop, 2013. "Industry Dimensions of the Resource Boom: An Input-Output Analysis," RBA Research Discussion Papers rdp2013-02, Reserve Bank of Australia.
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