Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/210069 
Year of Publication: 
2015
Series/Report no.: 
Working Paper No. 02/2015
Publisher: 
Norges Bank, Oslo
Abstract: 
How should monetary policy respond to a commodity price shock in a resource-rich economy? We study optimal monetary policy in a simple model of an oil exporting economy to provide a first answer to this question. The central bank faces a trade-off between the stabilization of domestic inflation and an appropriately defined output gap as in the reference New Keynesian model. But the welfare-relevant output gap depends on oil technology, and the weight on output stabilization is increasing in the size of the oil sector. Given substantial spillovers to the rest of the economy, optimal policy therefore calls for a reduction of the interest rate following a drop in the oil price in our model. In contrast, a central bank with a mandate to stabilize consumer price inflation may raise interest rates to limit the inflationary impact of an exchange rate depreciation.
Subjects: 
small open economy
oil export
monetary policy
JEL: 
E52
E58
J11
Persistent Identifier of the first edition: 
ISBN: 
978-82-7553-846-6
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.