IDEAS home Printed from https://ideas.repec.org/p/rba/rbardp/rdp2013-14.html
   My bibliography  Save this paper

Reserves of Natural Resources in a Small Open Economy

Author

Listed:
  • Isaac Gross

    (Reserve Bank of Australia)

  • James Hansen

    (Reserve Bank of Australia)

Abstract

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.

Suggested Citation

  • Isaac Gross & James Hansen, 2013. "Reserves of Natural Resources in a Small Open Economy," RBA Research Discussion Papers rdp2013-14, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2013-14
    as

    Download full text from publisher

    File URL: https://www.rba.gov.au/publications/rdp/2013/pdf/rdp2013-14.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
    2. 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.
    3. Ellis Connolly & David Orsmond, 2011. "The Mining Industry: From Bust to Boom," RBA Research Discussion Papers rdp2011-08, Reserve Bank of Australia.
    4. 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.
    5. Javier Andrés & Pablo Burriel & Ángel Estrada, 2006. "BEMOD: a DSGE model for the Spanish economy and the rest of the Euro area," Working Papers 0631, Banco de España.
    6. Ravenna, Federico, 2007. "Vector autoregressions and reduced form representations of DSGE models," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 2048-2064, October.
    7. Benigno, Gianluca & Thoenissen, Christoph, 2008. "Consumption and real exchange rates with incomplete markets and non-traded goods," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 926-948, October.
    8. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-861, October.
    9. Bems, Rudolfs & de Carvalho Filho, Irineu, 2011. "The current account and precautionary savings for exporters of exhaustible resources," Journal of International Economics, Elsevier, vol. 84(1), pages 48-64, May.
    10. Valery Charnavoki, 2019. "International Risk-Sharing and Optimal Monetary Policy in a Small Commodity-Exporting Economy," Russian Journal of Money and Finance, Bank of Russia, vol. 78(2), pages 3-27, June.
    11. Jean‐Marc Natal, 2012. "Monetary Policy Response to Oil Price Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(1), pages 53-101, February.
    12. Kirdan Lees, 2009. "Introducing KITT: The Reserve Bank of New Zealand new DSGE model for forecasting and policy design," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 5-20, June.
    13. 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.
    14. 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.
    15. R. Glenn Hubbard, 1990. "Asymmetric Information, Corporate Finance, and Investment," NBER Books, National Bureau of Economic Research, Inc, number glen90-1, October.
    16. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    17. Peter C. Reiss, 1990. "Economic and Financial Determinants of Oil and Gas Exploration Activity," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 181-206, National Bureau of Economic Research, Inc.
    18. Lawrence J. Christiano & Martin Eichenbaum & Robert Vigfusson, 2007. "Assessing Structural VARs," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 1-106, National Bureau of Economic Research, Inc.
    19. Vernon Topp & Leo Soames & Dean Parham & Harry Bloch, 2008. "Productivity in the Mining Industry: Measurement and Interpretation," Staff Working Papers 0807, Productivity Commission, Government of Australia.
    20. 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.
    21. Ellis Connolly & David Orsmond, 2011. "The Mining Industry: From Bust to Boom," RBA Annual Conference Volume (Discontinued), in: Hugo Gerard & Jonathan Kearns (ed.),The Australian Economy in the 2000s, Reserve Bank of Australia.
    22. 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.
    23. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-543, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fuentes H., Fernando & García, Carlos J., 2016. "The business cycle and copper mining in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    2. Hansen, James & Gross, Isaac, 2018. "Commodity price volatility with endogenous natural resources," European Economic Review, Elsevier, vol. 101(C), pages 157-180.
    3. Rabah Arezki & Valerie A. Ramey & Liugang Sheng, 2017. "News Shocks in Open Economies: Evidence from Giant Oil Discoveries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(1), pages 103-155.
    4. Yukhov, Alexey, 2021. "Long-term implications of oil discoveries for international saving in a DSGE model," Journal of Macroeconomics, Elsevier, vol. 67(C).
    5. International Monetary Fund, 2014. "Australia: Staff Report for 2013 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Australia," IMF Staff Country Reports 2014/051, International Monetary Fund.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hansen, James & Gross, Isaac, 2018. "Commodity price volatility with endogenous natural resources," European Economic Review, Elsevier, vol. 101(C), pages 157-180.
    2. Fuentes H., Fernando & García, Carlos J., 2016. "The business cycle and copper mining in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    3. Andrei Polbin & Sergey Drobyshevsky, 2014. "Developing a Dynamic Stochastic Model of General Equilibrium for the Russian Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 166P, pages 156-156.
    4. Mardi Dungey & Renee Fry-McKibbin & Verity Linehan, 2014. "Chinese resource demand and the natural resource supplier," Applied Economics, Taylor & Francis Journals, vol. 46(2), pages 167-178, January.
    5. Adrien Verdelhan, 2010. "A Habit‐Based Explanation of the Exchange Rate Risk Premium," Journal of Finance, American Finance Association, vol. 65(1), pages 123-146, February.
    6. Yukhov, Alexey, 2021. "Long-term implications of oil discoveries for international saving in a DSGE model," Journal of Macroeconomics, Elsevier, vol. 67(C).
    7. Knop, Stephen J. & Vespignani, Joaquin L., 2014. "The sectorial impact of commodity price shocks in Australia," Economic Modelling, Elsevier, vol. 42(C), pages 257-271.
    8. Stavros Panageas & Nicolae Garleanu, 2008. "Yooung, Old, Conservative and Bold: The implications of finite lives and heterogeneity for asset prices," 2008 Meeting Papers 409, Society for Economic Dynamics.
    9. Peter Tulip, 2014. "The Effect of the Mining Boom on the Australian Economy," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 17-22, December.
    10. Yacine Ait-Sahalia & Jonathan A. Parker & Motohiro Yogo, 2001. "Luxury Goods and the Equity Premium," NBER Working Papers 8417, National Bureau of Economic Research, Inc.
    11. Kris Jacobs, 2001. "Estimating Nonseparable Preference Specifications for Asset Market Participants," CIRANO Working Papers 2001s-12, CIRANO.
    12. Soccorsi, Stefano, 2016. "Measuring nonfundamentalness for structural VARs," Journal of Economic Dynamics and Control, Elsevier, vol. 71(C), pages 86-101.
    13. Rieger, Marc Oliver & Wang, Mei, 2012. "Can ambiguity aversion solve the equity premium puzzle? Survey evidence from international data," Finance Research Letters, Elsevier, vol. 9(2), pages 63-72.
    14. Arman Mansoorian & Leo Michelis, 2005. "Money, capital, and real liquidity effects with habit formation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(2), pages 430-453, May.
    15. Wang, Qin & Ren, Yu & Zou, Yiheng, 2016. "Uninsured expense shocks and equity premia," Economic Modelling, Elsevier, vol. 58(C), pages 64-74.
    16. Christos I. Giannikos & Georgios Koimisis, 2021. "Equity Premium with Habits, Wealth Inequality and Background Risk," JRFM, MDPI, vol. 14(7), pages 1-15, July.
    17. Marc Oliver Rieger & Thorsten Hens & Mei Wang, 2013. "International Evidence on the Equity Premium Puzzle and Time Discounting," Multinational Finance Journal, Multinational Finance Journal, vol. 17(3-4), pages 149-163, September.
    18. Kenneth W. Clements & Liang Li, 2014. "Valuing Resource Investments," Economics Discussion / Working Papers 14-27, The University of Western Australia, Department of Economics.
    19. Roger E. A. Farmer, 2018. "Pricing Assets in a Perpetual Youth Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 106-124, October.
    20. Fabrice Collard & Patrick Fève, 2012. "Sur les causes et les effets en macro économie : les Contributions de Sargent et Sims, Prix Nobel d'Economie 2011," Revue d'économie politique, Dalloz, vol. 122(3), pages 335-364.

    More about this item

    Keywords

    natural resources; small open economy;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rba:rbardp:rdp2013-14. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Paula Drew (email available below). General contact details of provider: https://edirc.repec.org/data/rbagvau.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.