{
  "title": "Boom-Bust Cycle, Asymmetrical Fiscal Response and the Dutch Disease",
  "publication": "IMF Working Papers, April 1, 2010",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/boom-bust-cycle-asymmetrical-fiscal-response-and-the-dutch-disease-23783",
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  "summary": "We examine the behavior of expenditure policy during boom-bust in commodity price cycles, and its implication for real exchange rate movements. To do so, we introduce a Dutch disease model with downward rigidities in government spending to revenue shock.",
  "sections": [
    {
      "heading": "Research question and approach",
      "content": "- Objective: Examine the behavior of expenditure policy during boom-bust commodity price cycles and implications for real exchange rate movements.\n- Model: Introduces a Dutch disease model with downward rigidities in government spending to revenue shock; model implies a decoupling between real exchange rate and commodity price movement during busts.\n- Empirical test: Panel data for 32 oil-producing countries over the period 1992 to 2009."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Aggregate finding structure:\n  - Results are threefold.\n- Finding 1 — Spending composition and exchange rate:\n  - Change in current spending has a stronger impact on the change in real exchange rate compared to capital spending.\n- Finding 2 — Asymmetry and stickiness:\n  - Current spending is downwardly sticky, but increases in boom time.\n  - Capital spending behaves conversely (i.e., less sticky downward, and responds differently across cycle phases).\n- Finding 3 — Role of fiscal rules:\n  - Limited evidence that fiscal rules have helped reduce the degree of responsiveness of current spending during booms.\n  - Evidence that fiscal rules are associated with a significant reduction in capital expenditure during busts while responsiveness to boosts is more muted.\n- Implication: The identified asymmetry raises concerns about potential adverse consequences on economic performance in oil-producing countries."
    },
    {
      "heading": "Policy implications and concerns",
      "content": "- Fiscal management:\n  - Downward rigidity in current spending can decouple exchange rate adjustment during busts, potentially complicating macroeconomic stabilization.\n  - Fiscal rules appear more effective at restraining capital expenditure during busts than at moderating current spending during booms.\n- Potential adverse consequences:\n  - Asymmetrical fiscal responses (sticky current spending up in booms, sticky down in busts; capital spending cut in busts) may harm long-term economic performance in oil-producing countries.\n- Policy focus:\n  - Consideration needed on designing fiscal frameworks that address asymmetric responses of current and capital spending across commodity cycles."
    },
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      "heading": "Publication and metadata",
      "content": "- Authors: Kareem Ismail, Rabah Arezki\n- Date: April 1, 2010\n- Sample: 32 oil-producing countries, 1992 to 2009\n- Pages: 33\n- Volume: 2010\n- Issue: 094\n- Series: Working Paper No. 2010/094\n- ISBN: 9781451982718\n- ISSN: 1018-5941\n\nIMF Working Papers — Boom-Bust Cycle, Asymmetrical Fiscal Response and the Dutch Disease (Kareem Ismail, Rabah Arezki, April 1, 2010).\n\n---\n\n Content in this bundle\n\n- wp1094 - References\n  - wp1094 - References (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1094 - References (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/boom-bust-cycle-asymmetrical-fiscal-response-and-the-dutch-disease-23783"
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    "Authors: Kareem Ismail, Rabah Arezki",
    "Published: April 1, 2010",
    "Series: IMF Working Papers",
    "Objective: Examine the behavior of expenditure policy during boom-bust commodity price cycles and implications for real exchange rate movements.",
    "Model: Introduces a Dutch disease model with downward rigidities in government spending to revenue shock; model implies a decoupling between real exchange rate and commodity price movement during busts.",
    "Empirical test: Panel data for 32 oil-producing countries over the period 1992 to 2009.",
    "Aggregate finding structure:",
    "Finding 1 — Spending composition and exchange rate:",
    "Finding 2 — Asymmetry and stickiness:",
    "Finding 3 — Role of fiscal rules:",
    "Implication: The identified asymmetry raises concerns about potential adverse consequences on economic performance in oil-producing countries.",
    "Fiscal management:",
    "Potential adverse consequences:",
    "Policy focus:",
    "Authors: Kareem Ismail, Rabah Arezki",
    "Date: April 1, 2010",
    "Sample: 32 oil-producing countries, 1992 to 2009",
    "Pages: 33",
    "Volume: 2010",
    "Issue: 094",
    "Series: Working Paper No. 2010/094",
    "ISBN: 9781451982718",
    "ISSN: 1018-5941",
    "**_wp1094 - References**"
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