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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
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    File URL: https://www.rba.gov.au/publications/rdp/2013/pdf/rdp2013-14.pdf
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    References listed on IDEAS

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    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, Oxford University Press, vol. 132(1), pages 103-155.
    4. 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 14/51, International Monetary Fund.
    5. Rabah Arezki & Valerie A. Ramey & Liugang Sheng, 2017. "News Shocks in Open Economies: Evidence from Giant Oil Discoveries," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 103-155.

    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)

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