Oil Windfalls, Fiscal Policy and Money Market Disequilibrium
In this paper, we base our policy analyses and simulations on three different specifications of a DSGE model developed for a CIS oil rich country and check the impact of the oil windfalls. The first proposed specification is a classical one with a Taylor rule and the second one is a recently new specification with a money growth rule. Beside two familiar specifications, we propose a new specification which assumes a temporary money market disequilibrium in the short run. This disequilibrium is a result of the fiscal misbalance and (non-primary) pro-deficit policy pursued by the fiscal authority. We show that all three specifications allow the fiscal authority to act as the main actor in propagating and amplifying the effects of the oil price shocks to the rest of the economy. When an oil shock hits the economy, its first round effect operates through oil fund transfers to the budget. The second round effects result from an increase in government consumption and government investment expenditures, which augments public capital affecting total factor productivity (TFP) and production, as well as the aggregate demand. We also find that despite significant differences, all three specifications demonstrate similar response dynamics.
|Date of creation:||01 Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 734 763-5020
Fax: 734 763-5850
Web page: http://www.wdi.umich.edu
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2013-1051. 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: (Laurie Gendron)
If references are entirely missing, you can add them using this form.