Abstract:

In the first essay, I study a general equilibrium model of an oil-producing economy. I construct a static model that illustrates that a tension is present in such economies due to the contractionary effects of higher oil prices and to the income effect generated by the increased oil revenues. I then develop a dynamic model with price rigidities in a two-sector economy with an oil sector. I find that the Phillips curve includes a measure of oil income that is responsible for additional inflationary pressures. Impulse responses show that the economy responds better to a Taylor rule that reacts to both final goods production and oil production than to a Taylor rule that reacts to final goods production only.

The second essay uses data on GDP, oil exports, inflation and interest rates on Mexico, to estimate a DSGE model of an oil-producing economy. Employing a Bayesian estimation methodology, I find that the monetary policy rule for the Mexican economy satisfies the Taylor principle during the post-1995 period. Bayesian impulse responses show that, in response to an oil price shock of 13.4%, output contracts by .11% while oil exports increase by 11%. There is also a rise in inflation of .1%. When comparing the model to others that ignore the presence of an oil sector, I find that it fits the data better.

The third essay provides a small open economy model for an oil-producing economy. Results show that, after an oil price increase, there is an improvement in the current account, a fall in final goods production, a depreciation of the real exchange rate, and an increase in core and CPI inflation. The effect on GDP is positive in the short run due to the sharp reduction in imports but negative afterwards since the increase in exports is not able to compensate the combined effect of higher imports and lower consumption. Additionally, the response of the monetary authority to these conditions is contractionary.

The fourth essay extends the model presented in the first essay and explores the relationships between oil revenues, fiscal policy and monetary policy in net oil-exporting economies.