Recovery from Dutch Disease

24 Pages Posted: 8 Nov 2017

See all articles by Mardi H. Dungey

Mardi H. Dungey

University of Tasmania (deceased); Financial Research Network (FIRN) (deceased)

Renee Fry-McKibbin

Australian National University (ANU) - Crawford School of Public Policy; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy

Verity Todoroski

Centre for Applied Macroeconomic Analysis, ANU

Vladimir Volkov

University of Tasmania

Date Written: November 6, 2017

Abstract

Dutch Disease is thought to have ongoing negative effects on resource rich open economies. There is little evidence on how economies recover. We document the Australian case in the aftermath of the commodities price boom resulting from high input demand from China. We show that where the boom is contained in an export-oriented, small-employment sector of the economy and driven by external demand rather than price shocks, the economy recovers to its equilibrium relatively quickly. To show this we add a new tool to the SVAR toolbox which enables us to assess the source of deviations in the observed outcomes from an empirical steady-state implied by the model.

Keywords: Dutch Disease, Australia, China, SVAR, Historical Decomposition, Empirical Steady-State Gap

JEL Classification: C51, E32, F43, F62

Suggested Citation

Dungey, Mardi H. and Fry-McKibbin, Renee and Todoroski, Verity and Volkov, Vladimir, Recovery from Dutch Disease (November 6, 2017). CAMA Working Paper No. 69/2017, Available at SSRN: https://ssrn.com/abstract=3066455 or http://dx.doi.org/10.2139/ssrn.3066455

Mardi H. Dungey

University of Tasmania (deceased)

Financial Research Network (FIRN) (deceased)

Renee Fry-McKibbin (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy ( email )

Canberra, Australian Capital Territory 0200
Australia

Verity Todoroski

Centre for Applied Macroeconomic Analysis, ANU ( email )

Vladimir Volkov

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

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