The Macroeconomic Effects of Natural Resource Extraction: Applications to Papua New Guinea

IMF Working Papers, May 31, 2013

Source details

Canonical URL: The Macroeconomic Effects of Natural Resource Extraction: Applications to Papua New Guinea

Authors: Suman S Basu, Jan Gottschalk, Werner Schule, Nikhil Vellodi, Susan S. Yang
Published: May 31, 2013
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781484321379.001

Model type: multi-sector dynamic stochastic general equilibrium (DSGE) model.
Sectors included: tradable, non-tradable, and mining sectors.
Institutional features: independent central bank and fiscal authority.
Calibration: calibrated to the current economy of Papua New Guinea to analyze a scaling-up of natural resource windfall revenues arriving in 2015.
Policy simulations: a suite of policy simulations examining fiscal and monetary policy responses to a positive shock to the mineral resource value of a country.

Primary macroeconomic effects associated with a resource boom (Dutch Disease effects) identified:
- real appreciation;
- fall in tradable sector production.
Source of Dutch Disease effects:
- these effects stem largely from the non-tradable component of government spending.
Monetary policy role:
- the central bank can offset the real appreciation;
- offsetting the appreciation comes at the cost of crowding out the private sector.
Fiscal management:
- a sovereign wealth fund (SWF), combined with a smooth capital spending path, entails the best means of dealing with macroeconomic volatility and maintaining a stable fiscal regime.

Limit the non-tradable component of government spending to reduce Dutch Disease pressures.
Use monetary policy cautiously: while it can neutralize real appreciation, it risks crowding out private investment/activity.
Establish and utilize a sovereign wealth fund (SWF) to manage windfall resource revenues.
Smooth capital spending over time to reduce macroeconomic volatility and support a stable fiscal regime.

Authors: Suman S Basu, Jan Gottschalk, Werner Schule, Nikhil Vellodi, Susan S. Yang
Date: May 31, 2013
Series: IMF Working Papers
Working Paper No.: 2013/138
Issue: 138
Pages: 37
DOI: https://doi.org/10.5089/9781484321379.001
ISBN: 9781484321379
ISSN: 1018-5941
Subject keywords: Consumption, Environment, Expenditure, Fiscal policy, National accounts, Natural resources, Public investment spending
Additional keywords: Africa, Consumption, DSGE models, monetary policy, monetary policy challenge, monetary policy option, monetary policy sector, monetary policy stance, natural resource, natural resource revenue, Natural resources, oil price shock, Papua New Guinea, Public investment spending, reserve management policy, resource revenue, resource-rich developing countries, revenue inflow, spending choice, spending profile, transmission mechanism, WP

Content derived from "The Macroeconomic Effects of Natural Resource Extraction: Applications to Papua New Guinea", IMF Working Papers (2013), 138.

1. The Baseline Scenario
- 1. The Baseline Scenario (Markdown version)
- 1. The Baseline Scenario (PDF)