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Resource shocks, macroeconomic adjustment and alternative policy options for a resource exporter: the case of Australia

Conference Paper


Abstract


  • The increased demand for energy and other resources in global markets, particularly arising from the rapidly developing economies of China and India, has resulted in considerable turbulence in resource prices and 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 now of considerable contemporary importance. For a resource exporting economy like Australia the resource price boom has had a number of beneficial effects, including increased government taxation revenues, increased employment and higher wages in the resource and resource related sectors, increased spending in the domestic economy and buoyant economic growth, increased resource exports to the booming economies of China and India and a stronger domestic currency which could have beneficial effects upon inflation. On the other hand these developments are likely to have adverse on the non resource sector that is subject to more competition for limited resources, a stronger exchange rate results in a loss of international competitiveness and reduced exports, a loss of employment in the non resource sector which is likely to be more labour intensive and an eventual slow down in the overall economy. These positive and negative effects, and the overall impact of a resource price boom, will fundamentally require closer analysis of the structure of the economy under scrutiny. In this context the policy response by government is likely to be crucial in producing overall positive effects. This is the objective of this paper for the case of Australia.

    This paper develops a dynamic macroeconomic model for a resource producing and exporting economy, focusing on Australia, with the objective of capturing key macroeconomic outcomes arising from an increase in the price of the resource. The adjustment process in the model emphasises a spending (or wealth) effect, an income effect, a revenue effect, a current account effect and an exchange rate effect from resource production that will facilitate a robust analysis of the macroeconomic impact of resource price shocks and policy responses to this.

Publication Date


  • 2008

Citation


  • Cox, G. M. & Harvie, C. (2008). Resource shocks, macroeconomic adjustment and alternative policy options for a resource exporter: the case of Australia. Leap-off strategy for Global Korea (pp. 331-346). Sungkyunkwan University, Seoul, Korea: The Korean Economic Association.

Start Page


  • 331

End Page


  • 346

Abstract


  • The increased demand for energy and other resources in global markets, particularly arising from the rapidly developing economies of China and India, has resulted in considerable turbulence in resource prices and 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 now of considerable contemporary importance. For a resource exporting economy like Australia the resource price boom has had a number of beneficial effects, including increased government taxation revenues, increased employment and higher wages in the resource and resource related sectors, increased spending in the domestic economy and buoyant economic growth, increased resource exports to the booming economies of China and India and a stronger domestic currency which could have beneficial effects upon inflation. On the other hand these developments are likely to have adverse on the non resource sector that is subject to more competition for limited resources, a stronger exchange rate results in a loss of international competitiveness and reduced exports, a loss of employment in the non resource sector which is likely to be more labour intensive and an eventual slow down in the overall economy. These positive and negative effects, and the overall impact of a resource price boom, will fundamentally require closer analysis of the structure of the economy under scrutiny. In this context the policy response by government is likely to be crucial in producing overall positive effects. This is the objective of this paper for the case of Australia.

    This paper develops a dynamic macroeconomic model for a resource producing and exporting economy, focusing on Australia, with the objective of capturing key macroeconomic outcomes arising from an increase in the price of the resource. The adjustment process in the model emphasises a spending (or wealth) effect, an income effect, a revenue effect, a current account effect and an exchange rate effect from resource production that will facilitate a robust analysis of the macroeconomic impact of resource price shocks and policy responses to this.

Publication Date


  • 2008

Citation


  • Cox, G. M. & Harvie, C. (2008). Resource shocks, macroeconomic adjustment and alternative policy options for a resource exporter: the case of Australia. Leap-off strategy for Global Korea (pp. 331-346). Sungkyunkwan University, Seoul, Korea: The Korean Economic Association.

Start Page


  • 331

End Page


  • 346