Constraints on the Design and Implementation of Monetary Policy in Oil Economies: The Case of Venezuela

June 1, 2008

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Format: Chicago

Constraints on the Design and Implementation of Monetary Policy in Oil Economies: The Case of Venezuela, (USA: International Monetary Fund, 2008) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

By definition, fiscal dominance impedes the effective implementation of any monetary strategy aimed at controlling inflation. Economies that exhibit oil dominance-a situation in which oil exports largely affect the main macroeconomic indicators-may also exhibit fiscal dominance. However, in this case, the standard indicators used to gauge the presence of fiscal dominance may fail to give the appropriate signals. The main purpose of this paper is twofold: i) to present a simple framework to analyze fiscal dominance in oil exporting countries and ii) to test the hypothesis of the presence of oil dominance/fiscal dominance (OD/FD) in the case of Venezuela. Using VAR and VEC models it is possible to conclude that there is relevant evidence supporting the validity of the OD/FD hypothesis.

Subject: Banking, Monetary base, Oil, Oil exports, Oil prices

Keywords: Exchange rate, Transmission mechanism, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/142
Stock No:

WPIEA2008142
ISBN:

9781451870008
ISSN:

1018-5941

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