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Budget Rules and Resource Booms : A Dynamic Stochastic General Equilibrium Analysis

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dc.contributor.authorDissou, Yazid
dc.contributor.authorDevarajan, Shantayanan
dc.contributor.authorRobinson, Sherman
dc.contributor.authorGo, Delfin S.
dc.date.accessioned2014-08-15T15:03:21Z
dc.date.available2014-08-15T15:03:21Z
dc.date.issued2014-07
dc.description.abstractThis paper develops a dynamic stochastic general equilibrium model to analyze and derive simple budget rules in the face of volatile public revenue from natural resources in a low-income country like Niger. The simulation results suggest three policy lessons or rules of thumb. When a resource price change is positive and temporary, the best strategy is to save the revenue windfall in a sovereign fund, and use the interest income from the fund to raise citizens' consumption over time. This strategy is preferred to investing in public capital domestically, even when private investment benefits from an enhanced public capital stock. Domestic investment raises the prices of domestic goods, leaving less money for government to transfer to households; public investment is not 100 percent effective in raising output. In the presence of a negative temporary resource price change, however, the best strategy is to cut public investment. This strategy dominates other methods, such as trimming government transfers to households, which reduces consumption directly, or borrowing, which incurs an interest premium as debt rises. In the presence of persistent (positive and negative) shocks, the best strategy is a mix of public investment and saving abroad in a balanced regime that provides a natural insurance against both types of price shocks. The combination of interest income from the sovereign fund, transfers to households, and output growth brought about by public investment provides the best protective mechanism to smooth consumption over time in response to changing resource prices.en
dc.identifierhttp://documents.worldbank.org/curated/en/2014/07/19896101/budget-rules-resource-booms-dynamic-stochastic-general-equilibrium-analysis
dc.identifier.urihttps://hdl.handle.net/10986/19355
dc.languageEnglish
dc.language.isoen_US
dc.publisherWorld Bank Group, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper;No. 6984
dc.rightsCC BY 3.0 IGO
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectACCOUNTING
dc.subjectADJUSTMENT COST
dc.subjectADJUSTMENT COST FUNCTION
dc.subjectADJUSTMENT COST PARAMETER
dc.subjectADJUSTMENT COSTS
dc.subjectAFFILIATED ORGANIZATIONS
dc.subjectAGGREGATE CONSUMPTION
dc.subjectARBITRAGE
dc.subjectARBITRAGE CONDITION
dc.subjectASSETS
dc.subjectBANK POLICY
dc.subjectBENCHMARK
dc.subjectBONDS
dc.subjectBOOM-BUST CYCLE
dc.subjectBUDGET CONSTRAINT
dc.subjectBUDGET CONSTRAINTS
dc.subjectBUSINESS CYCLE
dc.subjectCAPITAL ACCUMULATION
dc.subjectCAPITAL STOCK
dc.subjectCASH TRANSFERS
dc.subjectCENTRAL BANK
dc.subjectCIRCULAR FLOW
dc.subjectCIVIL WAR
dc.subjectCOMMODITY
dc.subjectCOMMODITY PRICE
dc.subjectCONSUMER DEMAND
dc.subjectCONSUMERS
dc.subjectCONSUMPTION GOOD
dc.subjectCONSUMPTION PATH
dc.subjectCONSUMPTION SMOOTHING
dc.subjectCONSUMPTION SPENDING
dc.subjectCRRA
dc.subjectCURRENCY
dc.subjectCURRENT ACCOUNT
dc.subjectCURRENT ACCOUNT BALANCE
dc.subjectCURRENT ACCOUNT DEFICIT
dc.subjectDEBT
dc.subjectDEBT LEVEL
dc.subjectDEBT SUSTAINABILITY
dc.subjectDECISION MAKING
dc.subjectDEPRECIATION RATE
dc.subjectDEPRECIATION RATES
dc.subjectDEVELOPING COUNTRIES
dc.subjectDEVELOPING COUNTRY
dc.subjectDEVELOPMENT POLICY
dc.subjectDISCOUNT RATE
dc.subjectDIVIDEND
dc.subjectDIVIDEND INCOME
dc.subjectDIVIDENDS
dc.subjectDOMESTIC CURRENCY
dc.subjectDOMESTIC GOOD
dc.subjectDOMESTIC GOODS
dc.subjectDOMESTIC INTEREST RATE
dc.subjectDOMESTIC INVESTMENT
dc.subjectDOMESTIC MARKET
dc.subjectDUTCH DISEASE
dc.subjectDYNAMIC ANALYSIS
dc.subjectECONOMETRIC ESTIMATE
dc.subjectECONOMETRICS
dc.subjectECONOMIC DEVELOPMENT
dc.subjectECONOMIC GROWTH
dc.subjectECONOMIC IMPLICATIONS
dc.subjectECONOMIC STATISTICS
dc.subjectELASTICITY
dc.subjectELASTICITY OF OUTPUT
dc.subjectELASTICITY OF SUBSTITUTION
dc.subjectEQUILIBRIUM
dc.subjectEQUILIBRIUM CONDITIONS
dc.subjectEQUILIBRIUM VALUE
dc.subjectEXOGENOUS RATE
dc.subjectEXPECTED VALUE
dc.subjectEXPENDITURE
dc.subjectEXPORT GOOD
dc.subjectEXPORT GOODS
dc.subjectEXPORT REVENUE
dc.subjectEXPORT SECTOR
dc.subjectEXPORT VOLUME
dc.subjectEXPORTER
dc.subjectEXPORTERS
dc.subjectEXPORTS
dc.subjectEXTERNAL SHOCKS
dc.subjectEXTERNALITY
dc.subjectFINANCIAL ASSETS
dc.subjectFIXED SHARE
dc.subjectFOREIGN ASSETS
dc.subjectFOREIGN CURRENCY
dc.subjectFOREIGN DEBT
dc.subjectFUNCTIONAL FORMS
dc.subjectFUTURE GROWTH
dc.subjectFUTURE RESEARCH
dc.subjectGDP
dc.subjectGENERAL EQUILIBRIUM
dc.subjectGENERAL EQUILIBRIUM ANALYSIS
dc.subjectGENERAL EQUILIBRIUM MODEL
dc.subjectGOOD GOVERNANCE
dc.subjectGOVERNMENT BUDGET
dc.subjectGOVERNMENT DEBT
dc.subjectGOVERNMENT EXPENDITURES
dc.subjectGOVERNMENT INVESTMENT
dc.subjectGOVERNMENT POLICY
dc.subjectGOVERNMENT REVENUE
dc.subjectGOVERNMENT SPENDING
dc.subjectGROWTH RATE
dc.subjectHOUSEHOLD INCOME
dc.subjectHOUSEHOLD WEALTH
dc.subjectHUMAN CAPITAL
dc.subjectHUMAN DEVELOPMENT
dc.subjectIMPORT
dc.subjectIMPORT TARIFF
dc.subjectIMPORTS
dc.subjectINCOME
dc.subjectINCOME SHOCKS
dc.subjectINCOME TAX
dc.subjectINCOME TAXES
dc.subjectINDEBTEDNESS
dc.subjectINEFFICIENCY
dc.subjectINSURANCE
dc.subjectINTEREST INCOME
dc.subjectINTEREST INCOMES
dc.subjectINTEREST RATE
dc.subjectINTEREST RATES
dc.subjectINTERNATIONAL BANK
dc.subjectINTERNATIONAL ECONOMICS
dc.subjectINTERNATIONAL MARKET
dc.subjectINTERNATIONAL TRADE
dc.subjectINVESTING
dc.subjectINVESTMENT DECISIONS
dc.subjectINVESTMENT DEMAND
dc.subjectINVESTMENT DEMANDS
dc.subjectINVESTMENT EXPENDITURES
dc.subjectINVESTMENT FUNCTION
dc.subjectINVESTMENT GOODS
dc.subjectLABOR MARKET
dc.subjectLEVEL OF INVESTMENT
dc.subjectLEVIES
dc.subjectLIQUID ASSETS
dc.subjectLIQUIDITY
dc.subjectLIQUIDITY CONSTRAINTS
dc.subjectLOW-INCOME COUNTRIES
dc.subjectLOW-INCOME COUNTRY
dc.subjectMACROECONOMIC MODELS
dc.subjectMACROECONOMIC VARIABLES
dc.subjectMACROECONOMICS
dc.subjectMARGINAL COST
dc.subjectMARGINAL PRODUCT
dc.subjectMARGINAL PRODUCTIVITY
dc.subjectMARKET PRICES
dc.subjectMAXIMUM LIKELIHOOD ESTIMATION
dc.subjectMONETARY FUND
dc.subjectMONETARY POLICY
dc.subjectMONETARY UNION
dc.subjectNATURAL RESOURCE
dc.subjectNATURAL RESOURCES
dc.subjectNEGATIVE SHOCK
dc.subjectNOMINAL EXCHANGE RATE
dc.subjectOIL REVENUE
dc.subjectOIL REVENUES
dc.subjectOPEN ECONOMIES
dc.subjectOPEN ECONOMY
dc.subjectOPTIMAL ALLOCATION
dc.subjectOPTIMIZATION
dc.subjectPERMANENT INCOME
dc.subjectPERMANENT INCOME HYPOTHESIS
dc.subjectPIH
dc.subjectPOLICY RESPONSES
dc.subjectPORTFOLIO
dc.subjectPOSITIVE EFFECTS
dc.subjectPRICE CHANGE
dc.subjectPRICE CHANGES
dc.subjectPRICE DECLINES
dc.subjectPRICE FLUCTUATIONS
dc.subjectPRICE INCREASE
dc.subjectPRICE INCREASES
dc.subjectPRICE UNCERTAINTY
dc.subjectPRICE VOLATILITY
dc.subjectPRIVATE CAPITAL
dc.subjectPRIVATE CAPITAL STOCK
dc.subjectPRIVATE CONSUMPTION
dc.subjectPRIVATE DEBT
dc.subjectPRIVATE INVESTMENT
dc.subjectPRODUCTION FUNCTION
dc.subjectPRODUCTIVITY
dc.subjectPUBLIC INVESTMENT
dc.subjectRATE OF DEPRECIATION
dc.subjectRATE OF GROWTH
dc.subjectRATE OF RETURN
dc.subjectREAL EXCHANGE RATE
dc.subjectREAL INTEREST
dc.subjectREAL INTEREST RATE
dc.subjectRELATIVE PRICE
dc.subjectRELATIVE PRICES
dc.subjectREMITTANCES
dc.subjectRESERVES
dc.subjectRETURNS
dc.subjectRISK AVERSION
dc.subjectSAVINGS
dc.subjectSMALL ECONOMY
dc.subjectSOCIAL VALUE
dc.subjectSOURCE OF UNCERTAINTY
dc.subjectSTANDARD DEVIATION
dc.subjectSTEADY STATE
dc.subjectSTEADY STATE LEVEL
dc.subjectSTEADY STATE LEVELS
dc.subjectTAX RATE
dc.subjectTAX RATES
dc.subjectTOTAL EXPORTS
dc.subjectTOTAL FACTOR PRODUCTIVITY
dc.subjectTOTAL INVESTMENT
dc.subjectTRADABLE GOOD
dc.subjectTRADE DEFICIT
dc.subjectTRADE POLICY
dc.subjectTRADE SHOCK
dc.subjectTRADE SHOCKS
dc.subjectTRANSMISSION MECHANISMS
dc.subjectUTILITY FUNCTION
dc.subjectVALUE OF OUTPUT
dc.subjectVOLATILITIES
dc.subjectWAGES
dc.subjectWEALTH
dc.subjectWEIGHTS
dc.subjectWITHDRAWAL
dc.subjectWORLD FINANCIAL MARKET
dc.subjectWORLD INTEREST RATE
dc.subjectWORLD PRICE
dc.subjectWORLD PRICES
dc.titleBudget Rules and Resource Booms : A Dynamic Stochastic General Equilibrium Analysisen
dspace.entity.typePublication
okr.date.disclosure2014-07-01
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2014/07/19896101/budget-rules-resource-booms-dynamic-stochastic-general-equilibrium-analysis
okr.globalpracticeMacroeconomics and Fiscal Management
okr.globalpracticeFinance and Markets
okr.globalpracticeTrade and Competitiveness
okr.guid354011468000025231
okr.identifier.doi10.1596/1813-9450-6984
okr.identifier.externaldocumentum000158349_20140729102616
okr.identifier.internaldocumentum19896101
okr.identifier.reportWPS6984
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/07/29/000158349_20140729102616/Rendered/PDF/WPS6984.pdfen
okr.region.administrativeAfrica
okr.region.countryNiger
okr.sectorIndustry and trade :: General industry and trade sector
okr.themeEconomic management :: Analysis of economic growth
okr.themeEconomic management :: Macroeconomic management
okr.topicMacroeconomics and Economic Growth::Investment and Investment Climate
okr.topicFinance and Financial Sector Development::Currencies and Exchange Rates
okr.topicEconomic Theory and Research
okr.topicPrivate Sector Development::Emerging Markets
okr.topicFinance and Financial Sector Development::Debt Markets
okr.unitDevelopment Prospects Group; and the Office of the Chief Economist, Middle East and North Africa Region
okr.volume1 of 1
relation.isAuthorOfPublicationddcdf87a-9a86-50e0-b365-0d2c747a0607
relation.isAuthorOfPublication165325f4-d27a-5241-80a4-eb5495c41c24
relation.isAuthorOfPublication.latestForDiscoveryddcdf87a-9a86-50e0-b365-0d2c747a0607
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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