Resource Shocks, Real Exchange Rate Appreciation and the Independence of Monetary Policy in Developing Oil-Exporting Countries

Abstract

This paper examines the objectives of monetary policy in four developing oil-exporting countries (DOECs), and the effects of the oil shocks on monetary control. A macroeconomic model is developed to analyze the relationships between domestic credit, the real exchange rate, and the balance of payments. The results show that efforts were made to sterilize foreign reserves, but the independence of monetary policy was compromised in some countries by monetized budget deficits and real exchange rate overvaluation. Variance decompositions from a VAR model affirm the role of the real exchange rate in balance of payments disequilibrium. [E52, F41]