Mariya Sviderskaya

Job market paper

Monetary policy and specialization of output and trade in resource-rich countries

This paper investigates the optimal monetary policy framework for resource-rich countries in a New Keynesian model of trading partners with traded and non-traded sectors as well as an exportable resource. The economic structure combines elements from Bergin and Corsetti (2020) and Gali and Monacelli (2005) and uses a flexible Taylor rule in its derivation of the optimal monetary policy. The calibration of the model is to the macroeconomic features of an emerging economy with substantial oil exports and an established manufacturing sector (Colombia). This paper provides answers to several key questions. First, it demonstrates the symptoms of the Dutch Disease in an emerging economy. The trade literature defines Dutch Disease symptoms to include a decline in the manufacturing sector due to real exchange rate appreciation. I extend that short list to include macroeconomic equilibrium effects associated with a resource export boom in this open-economy New Keynesian model. Second, it examines whether the appropriate setting of monetary policy can mitigate the symptoms of the Dutch Disease, and at what cost in terms of economic welfare. Third, it also explores whether counteracting real exchange rate volatility should be an explicit goal of monetary policy. Utilizing welfare analysis, this study aims to provide insights into the formulation of an effective monetary policy rule tailored to the economic conditions of a resource-exporting emerging economy.