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Resource price turbulence and macroeconomic adjustment for a resource exporter: a conceptual framework for policy analysis

Journal Article


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Abstract


  • Increased global demand for energy and other resources, particularly from the rapidly developing economies

    of China and India and the opening up of global resource markets to global investors and speculative activity,

    has resulted in considerable recent turbulence in resource prices. The recent magnitude of change in

    resource prices, both positive and negative, and their macroeconomic implications is of considerable

    contemporary importance to both resource importing and exporting economies. For a resource exporting

    economy, such as that of Australia, the recent resource price boom has resulted in: increased government

    taxation revenue, increased employment and wages in the resource and resource related sectors, increased

    spending in the domestic economy that contributed to buoyant economic growth, increased resource

    exports to the booming economies of China and India and contributed to a stronger domestic currency with

    beneficial effects upon inflation. On the other hand these developments have had adverse effects on the nonresource

    sector by: subjecting it to more intense competition for limited resources, contributing to a loss of

    international competitiveness and reduced exports arising from a stronger exchange rate, reducing

    employment in the relatively more labour intensive non-resource sector, and contributing to an eventual

    slow down in the overall economy. These positive and negative effects, and the overall impact of a resource

    price boom, require a fundamentally closer analysis of the structure of the economy under scrutiny. In this

    context the policy response by government is likely to be pivotal in determining the overall macroeconomic

    outcomes from a resource price boom.

    The aim of this paper is to develop a generic analytical framework to appraise economic outcomes in the

    wake of a resource price boom for a resource producing and exporting economy. To this end a dynamic long

    run macroeconomic model is developed, emphasising the important role and contribution of government

    fiscal policy in influencing subsequent macroeconomic outcomes. The adjustment process in the model

    arising from a resource price shock emphasises a spending (or wealth) effect, an income effect, a revenue

    effect, a current account effect and an exchange rate effect, which facilitate a robust analysis of subsequent

    macroeconomic outcomes from such a shock as well as related policy responses.

Publication Date


  • 2010

Citation


  • Cox, G. M. & Harvie, C. (2010). Resource price turbulence and macroeconomic adjustment for a resource exporter: a conceptual framework for policy analysis. Energy Economics, 32 (2), 469-489.

Scopus Eid


  • 2-s2.0-74349101123

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1774&context=commpapers

Ro Metadata Url


  • http://ro.uow.edu.au/commpapers/733

Number Of Pages


  • 20

Start Page


  • 469

End Page


  • 489

Volume


  • 32

Issue


  • 2

Place Of Publication


  • http://www.elsevier.com/wps/find/journaldescription.cws_home/30413/description#description

Abstract


  • Increased global demand for energy and other resources, particularly from the rapidly developing economies

    of China and India and the opening up of global resource markets to global investors and speculative activity,

    has resulted in considerable recent turbulence in resource prices. The recent magnitude of change in

    resource prices, both positive and negative, and their macroeconomic implications is of considerable

    contemporary importance to both resource importing and exporting economies. For a resource exporting

    economy, such as that of Australia, the recent resource price boom has resulted in: increased government

    taxation revenue, increased employment and wages in the resource and resource related sectors, increased

    spending in the domestic economy that contributed to buoyant economic growth, increased resource

    exports to the booming economies of China and India and contributed to a stronger domestic currency with

    beneficial effects upon inflation. On the other hand these developments have had adverse effects on the nonresource

    sector by: subjecting it to more intense competition for limited resources, contributing to a loss of

    international competitiveness and reduced exports arising from a stronger exchange rate, reducing

    employment in the relatively more labour intensive non-resource sector, and contributing to an eventual

    slow down in the overall economy. These positive and negative effects, and the overall impact of a resource

    price boom, require a fundamentally closer analysis of the structure of the economy under scrutiny. In this

    context the policy response by government is likely to be pivotal in determining the overall macroeconomic

    outcomes from a resource price boom.

    The aim of this paper is to develop a generic analytical framework to appraise economic outcomes in the

    wake of a resource price boom for a resource producing and exporting economy. To this end a dynamic long

    run macroeconomic model is developed, emphasising the important role and contribution of government

    fiscal policy in influencing subsequent macroeconomic outcomes. The adjustment process in the model

    arising from a resource price shock emphasises a spending (or wealth) effect, an income effect, a revenue

    effect, a current account effect and an exchange rate effect, which facilitate a robust analysis of subsequent

    macroeconomic outcomes from such a shock as well as related policy responses.

Publication Date


  • 2010

Citation


  • Cox, G. M. & Harvie, C. (2010). Resource price turbulence and macroeconomic adjustment for a resource exporter: a conceptual framework for policy analysis. Energy Economics, 32 (2), 469-489.

Scopus Eid


  • 2-s2.0-74349101123

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1774&context=commpapers

Ro Metadata Url


  • http://ro.uow.edu.au/commpapers/733

Number Of Pages


  • 20

Start Page


  • 469

End Page


  • 489

Volume


  • 32

Issue


  • 2

Place Of Publication


  • http://www.elsevier.com/wps/find/journaldescription.cws_home/30413/description#description