Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/115507
Authors: 
García-Cicco, Javier
Kawamura, Enrique
Year of Publication: 
2015
Series/Report no.: 
IDB Working Paper Series IDB-WP-562
Abstract: 
This paper evaluates from a welfare perspective three policy alternatives for dealing with Dutch disease problems originating from cyclical movements in commodity prices: fiscal rules for government expenditures, capital controls, and taxes on domestic lending. A DSGE model of a small open economy is developed, with a sectoral decomposition that features three distinctive characteristics: financial frictions, a learning-by-doing externality in the industrial sector, and a fraction of households being non-Ricardian (credit constrained). The model is calibrated using Chilean data. For each policy tool, optimal simple rules are analyzed from a welfare (Ramsey) perspective, describing how different households rank the several policy alternatives, and studying how each of the models features shapes the optimal policy design. A general conclusion of the analysis is that the included Dutch disease inefficiencies are of quantitatively limited relevance in analyzing the desirability of these policies from a welfare perspective.
Subjects: 
Dutch Disease
Fiscal procyclicality
Fiscal rules
Capital controls
Macro-prudential policies
JEL: 
F41
E61
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode
Document Type: 
Working Paper

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