Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy

In this paper, we compare, first, the impact of a windfall and a boom sectors on the economy of an oil exporting country and their welfare implications ; in a second step, we analyze how monetary policy should be conducted to insulate the economy from the main impact of these shocks, namely the Dutch Disease. To do so, we built a Multisector DSGE model with nominal and real rigidities. The main finding is that Dutch disease effect arise after spending and resource movement effects in the following cases : i) flexible prices and wages both in the case of a windfall and in the case of a boom ; ii) flexible wage and sticky price only in the case of a fixed exchange rate. In other cases, Dutch disease effect can be avoided if : prices are sticky and wages are flexible when the exchange rate is flexible ; iii) prices and wages are sticky whatever the objective of the central bank is in both cases : windfall and boom. We also compare the source of fluctuation that leads to Dutch disease effect and we conclude that the windfall leads to a strong e¤ect in terms of de-industrialization compared to a boom. The choice of flexible exchange rate regime also helps to improve welfare

External Shocks and Monetary Policy in a Small Open Oil Exporting Economy

To investigate the dynamic effect of external shocks on an oil exporting economy, we estimate, using Bayesian approach, a DSGE model based on the features of the Algerian economy. The main purpose is to investigate the dynamic effect of four external shocks (oil price shock, USD/EUR exchange rate shock, international inflation shock and international interest rate shock) and to examine the appropriate monetary policy strategy for Algerian economy, given its structural characteristics and the pattern of the external shocks. We analyze the impulse response functions of our external shocks according to alternative monetary rules. The welfare cost associated with each monetary policy rule has been considered. Our main findings show that, over the period 1990Q1-2010Q4, core inflation monetary rule allows better to stabilize both output and inflation. This rule also appears to be the best way to improve a social welfare.Monetary policy, external shocks, oil exporting economy, Algeria, DSGE model.

Essais sur la politique monétaire dans une économie exportatrice de pétrole

Cette thèse de doctorat aborde le rôle de la politique dans une économie exportatrice de pétrole sous forme de trois essais. Chaque essai tente d'apporter des réponses à une problématique liée à la réponse de la politique monétaire face aux chocs externes, en particulier le choc pétrolier. A ce titre, nous construisons trois modèles dynamique et stochastique d'équilibre général (DSGE) multisectoriels que nous calibrons et estimons sur des pays producteurs de pétrole. Dans le premier essai, nous montrons que le syndrome hollandais sous ses deux effets, dépense et ressource, semble avoir lieu dans une économie exportatrice de pétrole seulement lorsque les salaires sont flexibles et les prix rigides dans le cas d'un régime de change fixe. En d'autre terme, les simulations montrent que le syndrome hollandais est évité si les prix sont rigides et les salaires sont flexibles lorsque les autorités monétaires adoptent une règle de ciblage d'inflation ; les prix et les salaires sont rigides, quelque soit l'objectif de la Banque centrale dans les deux cas : aubaine et boom. Nous montrons également, en comparant les sources de fluctuation qui conduisent au syndrome hollandais que la hausse de gisement pétrolier (boom) conduit à une plus forte désindustrialisation de l'économie comparé à l'aubaine. Enfin, le régime de change flexible semble améliorer le bien être des ménages. Dans le deuxième essai , nous comparons trois règles de politique monétaire (ciblage d'inflation, ciblage de taux de change et ciblage de l'inflation sous jacente) face à quatre chocs externes (prix du pétrole, taux de change, terme de l'échange et taux d'intérêt international) subis par un pays exportateur de pétrole. Pour ce faire, nous construisons un modèle DSGE à deux secteurs (pétrolier et non-pétrolier) estimé sur des données trimestrielles de l'économie algérienne en utilisant l'approche bayésienne. Les résultats montrent que, globalement, la réponse des variables macroéconomiques du modèle, est similaire sous les trois règles de politique monétaire. Notre principal résultat est la dépréciation du Dollar américain et la hausse du prix du pétrole constituent la principale source de fluctuation cyclique de l'économie algérienne. Aussi, et comme prédit par la théorie, la dépréciation du dollar américain a significativement contribué à la détérioration des termes de l'échange et du compte courant. Dans ce cas, la Banque centrale peut adopter une politique de dévaluation pour éviter les effets de ces chocs. Dans le troisième essai, nous considérons un échantillon de 16 pays exportateurs de pétrole que nous divisons en deux sous échantillons afin de comparer l'occurrence du syndrome hollandais dans deux principales catégories : les pays fortement dépendants du pétrole et les pays faiblement dépendants du pétrole. Nos principaux résultats montrent que six parmi huit pays fortement dépendants subissent les effets du syndrome hollandais. Dans l'autre sous échantillons, seul un pays sur huit subit le syndrome hollandais sous ses effets dépenses et ressources. Toutefois, concernant la règle de politique monétaire à adopter face au syndrome hollandais, les résultats obtenus ne sont pas tous identiques dans tous les pays. Il semblerait que, l'adoption d'une politique monétaire appropriée dépend essentiellement des caractéristiques structurelles de chaque pays.The aim of this thesis is to analyze the impact of external shocks on oil exporting economies and the role of monetary policy in this context. It consists of three essays. In the first essay, we build a Multi-sector Dynamic Stochastic General Equilibrium (DSGE) model to investigate the impact of both windfall (an increase in oil price) and boom (an increase in oil resource) on an oil exporting economy. Our model is built to see if the two oil shocks (windfall and boom) generate, in the same proportion, a Dutch Disease effect. Our main findings show that the Dutch disease effect under its two main mechanisms, namely spending effect and resource-movement effect, occurs only in the case of flexible wages and sticky prices, when exchange rate is fixed. We also compare the source of fluctuations that leads to a strong effect in term of de-industrialization. We conclude that the windfall leads to a stronger effect than a boom. Finally, the choice of flexible exchange rate regime helps to improve welfare.In the second essay, we estimate, by using the Bayesian approach, a DSGE model for Algerian economy investigating the dynamic effect of four external shocks (oil price, real exchange rate, international interest rate and foreign inflation), and examining the appropriate monetary policy rule. Our main findings show that, over the period 1990Q1-2010Q4, core inflation target is the best monetary rule to stabilize both output and inflation. In the third essay, we investigate the impact of the recent increase of oil price on a small open oil exporting economy. For this, we estimate a Dynamic, Stochastic, General equilibrium (DSGE) model for some oil producing countries using the Bayesian approach. We consider, in this essay, a sample of 16 oil exporting countries (Algeria, Argentina, Ecuador, Gabon, Indonesia, Kuwait, Libya, Malaysia, Mexico, Nigeria, Oman, Russia, Saudi Arabia, United Arab Emirates, and Venezuela) over the period from 1980 to 2010, except for Russia where our sample begins in 1992. In order to distinguish between high-dependent and low-dependent countries, we use two indicators : the ratio of fuel exports to total merchandise exports and the ratio of oil exports to GDP. We estimate the median for each ratio on our 16 studied countries. Countries above (below) the median are considered as high (low) oil dependent economies. We verify if the first group is more sensitive to the Dutch disease effect. We also assess the role of monetary policy. Our main findings show that in the first sample, namely high oil dependant economies, 6 countries are affected by the Dutch disease (decrease in the manufacturing production). Low oil dependant countries, are less affected by the fluctuation of oil price. Indeed, only one country has suffered a Dutch disease effect after the shock. Nevertheless, Regarding the appropriate monetary policy rule, we find that both inflation targeting and exchange rate rules may be effective to contain the size of the Dutch disease effect. Our results suggest that in Algeria and Saudi Arabia, inflation targeting offers better performances. We observe the opposite in Gabon, Kuwait, Oman, and Venezuela. Such results are consistent with economic theory. Indeed, we see that in more open economies and smaller countries (in terms of economic size), the exchange rate rule is preferable to inflation rule. Venezuela seems an exception. Such country does not fulfill the traditional criteria favoring the choice of the exchange rule. In fact, this exception is only apparent. First, if we consider the volatility, we see that Venezuela is among the most volatile economy. Second, Venezuela suffers from a fiscal dominance effect: both inflation rate and fiscal deficit are the highest relative to other studied countries

Monetary Policy and the Dutch Disease in a Small Open Oil Exporting Economy

In this paper, we compare, first, the impact of a windfall and a boom sectors on the economy of an oil exporting country and their welfare implications ; in a second step, we analyze how monetary policy should be conducted to insulate the economy from the main impact of these shocks, namely the Dutch Disease. To do so, we built a Multisector DSGE model with nominal and real rigidities. The main finding is that Dutch disease effect arise after spending and resource movement effects in the following cases : i) flexible prices and wages both in the case of a windfall and in the case of a boom ; ii) flexible wage and sticky price only in the case of a …fixed exchange rate. In other cases, Dutch disease effect can be avoided if : prices are sticky and wages are flexible when the exchange rate is flexible ; iii) prices and wages are sticky whatever the objective of the central bank is in both cases : windfall and boom. We also compare the source of fluctuation that leads to Dutch disease effect and we conclude that the windfall leads to a strong e¤ect in terms of de-industrialization compared to a boom. The choice of flexible exchange rate regime also helps to improve welfare.Monetary Policy, Dutch Disease, Oil Prices, Small Open Economy

THE DUTCH DISEASE EFFECT IN HIGH VS LOW OIL DEPENDENT COUNTRIES

To investigate the main impacts of the recent increase of oil price on oil exporting economies, we estimate a DSGE model for a sample of 16 oil exporting countries (Algeria, Argentina, Ecuador, Gabon, Indonesia, Kuwait, Libya, Malaysia, Mexico, Nigeria, Oman, Russia, Saudi Arabia, United Arab Emirates, and Venezuela) over the period from 1980 to 2010, except for Russia where our sample begins in 1992. In order to distinguish between high-dependent and low-dependent countries, we use two indicators: the ratio of fuel exports to total merchandise export and the ratio of oil exports to GDP. We verify if the first group is more sensitive to the Dutch disease effect. We also assess the role of monetary policy.Our main findings are twofold. First, our results confirm the fact that the Dutch disease occurs mainly in high oil dependent countries. More precisely, we find that the manufacturing production decreases in the aftermath of a positive oil price shock in six countries (on eight) of our first sample while only Mexico suffers from a Dutch disease in the sample of low oil dependent economies. Second, the appropriate monetary policy rule -exchange rate rule versus inflation targeting one-to prevent the Dutch disease differs according to the countries. In other words, the best monetary rule is specific to each country

Macroeconomic effects of green subsidies

International audienceIn this study, we explore the macroeconomic effects of green subsidies that governments apply to support the ecological transition in their economies. This includes subsidies provided to consumers, green firms, and private banks that lend to green firms. In our experiments, we assume that these subsidies are financed through a carbon tax. Calibrated to France, we find that providing subsidies to support the labor cost of green firms is the most effective tool to reduce pollution and support the growth of the green sector. This policy is more effective than a carbon tax alone, and especially for stimulating a positive supply–demand cycle in the green sector.In terms of pollution reduction, capital injection into green firms, green vouchers for consumers, and subsidies to private banks’ lending to green firms are less effective than carbon tax alone.If labor becomes more substitutable between green and brown sectors, the effects of green subsidies are attenuated. If capital becomes more substitutable between green and brown sectors, then the effects of green subsidies are amplified

External shocks and monetary policy in a small open oil exporting economy

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