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Issue Q2 2014  
Monetary policy and the Dutch disease effect in an oil exporting economy  
Mohamed Tahar Benkhodja
In this paper, 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. Abstract

Monetary policy ; Dutch disease ; Oil prices ; Small open economy ; DSGE ; Keywords
E52 ; F41 ; Q40 ; JEL classification
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