Monetary Policy Rule, Exchange Rate Regime, and Fiscal Policy Cyclicality in a Developing Oil Economy

Abstract

According to Frankel and Catao (2011), a commodity exporting developing economy is advised to target the output price index rather than consumer price index, as the former monetary policy is automatically countercyclical against the volatile terms of trade shock. This paper constructs a dynamic stochastic general equilibrium model of joint monetary and scal policies for a developing oil economy, to nd an appropriate monetary rule combined with a pro/counter/acyclical scal stance based on a loss measure. The foreign exchange interventions distinguish between a managed and exible exchange rate regime, while scal policy cyclicality depends on the oil output response of public consumption and public investment. The study reveals that the best policy combination is a countercyclical scal stance and CPI in ation monetary targeting under a exible exchange rate regime to stabilize equally the domestic price in ation, aggregate output, and real exchange rate in a small open economy. This result is conditional on weights for those three variables used in the loss measure.

An Estimated Bayesian DSGE Model for Kazakhstan

“…Abilov et al (2019) built a macroeconometric model in the spirit of Cowles Commission models for Kazakhstan for simulation and forecasting purposes. Algozhina (2016) builds a fully-specified DSGE model for Kazakhstan to analyze monetary and fiscal policies under two alternative exchange rate regimes accounting for the dependence of the economy on natural resources. Although the model in Algozhina (2016) takes into account all specific characteristics of the Kazakhstani economy, the size of the model makes the interpretation of conclusions complicated.…”

“…Algozhina (2016) builds a fully-specified DSGE model for Kazakhstan to analyze monetary and fiscal policies under two alternative exchange rate regimes accounting for the dependence of the economy on natural resources. Although the model in Algozhina (2016) takes into account all specific characteristics of the Kazakhstani economy, the size of the model makes the interpretation of conclusions complicated. Most of the parameters in the model were calibrated by either using macro data or borrowing the coefficients from the literature on similar economies.…”

Mutual Influence of Fiscal and Monetary Policy in the Context of Ensuring Macro-Financial Stability of the State

“…The research of mutual influence of fiscal and monetary policy is extremely relevant, especially in the current processes of turbulent development of the financial services market and macro-financial stability of the state. Scientists (Algozhina A., 2022;Fedyshyn M. et al, 2022) proposed a dynamic stochastic general equilibrium model of joint monetary and fiscal policy for a developing oil economy. The basis of the study by scientists (Nobrega W. et al, 2022;Zhavoronok A. et al, 2022) is the development of a model that aims to study the impact of managing the average maturity of public debt when the economy is faced with shocks to monetary policy.…”

A Medium-Scale Bayesian DSGE Model for Kazakhstan with Incomplete Exchange Rate Pass-Through

“…There is a paucity of literature in this direction due to the lack of quality of macroeconomic data and limited research on Kazakhstan, but the research in this area has been more active than ever for the last couple of years (e.g. Abilov, 2020;Konebayev, 2020;Algozhina, 2016). Although Abilov (2020) points out at the role of various shocks in business cycle fluctuations, the model is a small-scale version of New Keynesian models without investment and evolution of capital, which are important in explaining the propagation mechanism of monetary policy.…”