The Effects of Currency Substitutionon the Response of the Current Account to Supply Shocks

Standard real models predict that a permanent increase in oil prices would result in a current account surplus. This is due to the fact that investment falls while saving remains unchanged. This paper shows that if currency substitution is introduced into the analysis, the same shock could cause a c...

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Bibliographic Details
Corporate Author: International Monetary Fund
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1988
Series:IMF Working Papers
Subjects:
Oil
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a The Effects of Currency Substitutionon the Response of the Current Account to Supply Shocks 
260 |a Washington, D.C.  |b International Monetary Fund  |c 1988 
300 |a 24 pages 
651 4 |a Chile 
653 |a Government and the Monetary System 
653 |a Energy: Demand and Supply 
653 |a Payment Systems 
653 |a Wealth 
653 |a Oil prices 
653 |a Dollarization 
653 |a Current account 
653 |a Short-term Capital Movements 
653 |a Oil 
653 |a Monetary economics 
653 |a Regimes 
653 |a Investments: Energy 
653 |a Saving 
653 |a Current Account Adjustment 
653 |a Balance of payments 
653 |a Exports and Imports 
653 |a International economics 
653 |a Petroleum industry and trade 
653 |a National accounts 
653 |a Commodities 
653 |a Energy: General 
653 |a Standards 
653 |a Consumption; Economics 
653 |a Consumption 
653 |a Monetary Systems 
653 |a Prices 
653 |a Macroeconomics 
653 |a Monetary policy 
653 |a Macroeconomics: Consumption 
653 |a Investment & securities 
653 |a Money and Monetary Policy 
710 2 |a International Monetary Fund 
041 0 7 |a eng  |2 ISO 639-2 
989 |b IMF  |a International Monetary Fund 
490 0 |a IMF Working Papers 
028 5 0 |a 10.5089/9781451929454.001 
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082 0 |a 330 
520 |a Standard real models predict that a permanent increase in oil prices would result in a current account surplus. This is due to the fact that investment falls while saving remains unchanged. This paper shows that if currency substitution is introduced into the analysis, the same shock could cause a current account deficit. Furthermore, the higher the dependence of the economy on oil, the larger would be the deficit. The presence of foreign money makes it optimal for the public to decrease saving following the terms of trade deterioration. The fall in saving could be larger than the decline in investment