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Oil price shocks and macroeconomic dynamics in resource-rich emerging economies under regime shifts

Babatunde S. Omotosho, Bo Yang Orcid Logo

Journal of International Money and Finance, Volume: 144, Start page: 103082

Swansea University Author: Bo Yang Orcid Logo

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DOI (Published version): 10.1016/j.jimonfin.2024.103082

Abstract

How do global oil price fluctuations affect macroeconomic activity and monetary policy in resource-rich emerging economies? This paper tackles this question by developing a unified emerging market/rest-of-the-world DSGE framework featuring Ricardian and Non-Ricardian households, an oil-producing sec...

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Published in: Journal of International Money and Finance
ISSN: 0261-5606
Published: Elsevier BV 2024
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URI: https://cronfa.swan.ac.uk/Record/cronfa66075
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Abstract: How do global oil price fluctuations affect macroeconomic activity and monetary policy in resource-rich emerging economies? This paper tackles this question by developing a unified emerging market/rest-of-the-world DSGE framework featuring Ricardian and Non-Ricardian households, an oil-producing sector, a fuel subsidy programme, and a regime-switching process. The model is estimated using Bayesian methods, allowing us to be agnostic regarding regime shifts in the monetary policy rule and oil price volatility. Using data for Nigeria, we find substantial empirical support for the regime-switching behaviour and discuss how macroeconomic implications of oil price shocks may vary depending on the nature of the shock, monetary policy responses, and the fuel subsidy policy in place. Apart from providing important insights into the monetary policy transmission mechanism, the paper offers a novel, flexible, and functional model for future policy analysis, especially in resource-rich emerging countries.
Keywords: Oil price shocks; Regime-switching DSGE models; Emerging economies; Monetary policy; Bayesian estimation
College: Faculty of Humanities and Social Sciences
Funders: British Academy (GrantNumber(s): SG2122\210952)
Start Page: 103082

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