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

Author/Editor: da Costa, Mercedes ; Olivo, Víctor
Publication Date: June 01, 2008
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(s): Venezuela, Republica Bolivariana de | Oil exporting countries | Oil exports | Monetary policy | Fiscal policy | Venezuela, República Bolivariana de

Author's Keyword(s): Monetary Policy | Fiscal Policy | Oil Economies.
Publication Date: June 01, 2008
Format: Paper
Stock No: WPIEA2008142 Pages: 47
US$18.00 (Academic Rate:
US$18.00 )
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