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Oil Windfalls in Ghana: A DSGE Approach

37 Pages Posted: 25 May 2010  

Jan Gottschalk

International Monetary Fund (IMF) - Policy Development and Review Department

Jihad C. Dagher

International Monetary Fund (IMF) - Research Department

Rafael Portillo

International Monetary Fund (IMF)

Date Written: May 2010

Abstract

We use a calibrated multi-sector DSGE model to analyze the likely impact of oil windfalls on the Ghanaian economy, under alternative fiscal and monetary policy responses. We distinguish between the short-run impact, associated with demand-related pressures, and the medium run impact on competitiveness and growth. The impact on inflation and the real exchange rate could be moderate, especially if the fiscal authorities smooth oil-related spending or increase public spending's import content. However, a policy mix that results in both a fiscal expansion and the simultaneous accumulation of the foreign currency proceeds from oil as international reserves- to offset the real appreciation- would raise demand pressures and crowd-out the private sector. In the medium term, the negative impact on competitiveness resulting from "Dutch Disease" effects-could be small, provided public spending increases the stock of productive public capital. These findings highlight the role of different policy responses, and their interaction, for the macroeconomic impact of oil proceeds.

Keywords: Demand, Economic models, Exchange rate appreciation, Fiscal policy, Ghana, Government expenditures, Inflation, Monetary policy, Nonoil sector, Oil production, Oil revenues, Reserves accumulation

Suggested Citation

Gottschalk, Jan and Dagher, Jihad C. and Portillo, Rafael, Oil Windfalls in Ghana: A DSGE Approach (May 2010). IMF Working Papers, Vol. , pp. 1-36, 2010. Available at SSRN: https://ssrn.com/abstract=1612587

Jan Gottschalk (Contact Author)

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Jihad Dagher

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Rafael Portillo

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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