Conferences at Department of Economics, University of Toronto, RCEF 2012: Cities, Open Economies, and Public Policy

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Monetary and Fiscal Policy in Oil Exporting Country: The Case of Russia

Andrey Polbin, Ekaterina Ponomareva, Andrey Zubarev

Last modified: 2012-07-12

Abstract


In this paper we develop a small open economy DSGE model for Russia. Model consists of three production sectors: tradable and nontradable sectors and oil extraction sector. Oil is used in households consumption and as an intermediate input in tradable and nontradable sectors. The model incorporates a number of nominal and real rigidities such as price and wage stickiness, habits in consumption, investment and portfolio adjustment costs and firm specific capital. In the first step, we analyze the impulse response functions to oil price shock under alternative monetary regimes and optimal Ramsey allocation. The paper shows that simple optimized rule that reacts to exchange rate can approximate optimal policy reasonably well. In the next step, we endogenize government spending and custom duty on oil exports and analyze jointly optimal fiscal and monetary rules. Results show that current custom duty rule is far away from optimal.