Boom goes the price: giant resource discoveries and real exchange rate appreciation

Torfinn Harding, Radoslaw Stefanski, Gerhard Toews

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    3 Citations (Scopus)
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    Abstract

    We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country's GDP appreciates the real exchange rate by 1.5% within 10 years following the discovery. The appreciation starts before production starts and the non-traded component of the real exchange rate drives the appreciation. Labor reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labor productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa-Samuelson effect.
    Original languageEnglish
    Pages (from-to)1715-1728
    JournalThe Economic Journal
    Volume130
    Issue number630
    Early online date20 Feb 2020
    DOIs
    Publication statusPublished - Aug 2020

    Keywords

    • Real exchange rates
    • Natural resource discoveries
    • Dutch disease
    • Oil
    • Balassa-Samuelson effect

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