The increased demand for energy and other resources in global markets, particularly arising from the rapidly developing economies of China and India, has recently produced considerable turbulence in resource prices including, most obviously, that of oil. Given the recent magnitude of change in resource prices, the macroeconomic implications of this for resource producing and exporting economies and resource importing economies is of now considerable contemporary importance.
This paper develops a dynamic macroeconomic model for a resource producing and exporting economy, with the objective of capturing the key macroeconomic developments that are likely to arise from an increase in the price of the resource. The adjustment process in the model emphasises a spending (or wealth) effect, a revenue effect, a current account effect and an exchange rate effect from resource production to facilitate a robust analysis of the macroeconomic impact of resource price shocks. Given the underlying nature and construct of the model it is highly pertinent for analysis of contemporary developments in the Australian resources sector.