Optimal Monetary, Fiscal and Macroprudential Policy in an Oil Exporting Economy: A Review

Abstract

This article surveys research papers dedicated to optimal countercyclical monetary, fiscal and macroprudential policy in an oil exporting economy. The main principles of optimal policy follow from the characterization of the small open economy and the key role played by the real exchange rate in a commodity-exporting economy. The optimal policy includes a budget rule, flexible exchange rate and inflation targeting, as well as instruments of macroprudential policy. Important extensions for future research include the dependence of the tradable sector on the import of investment goods, the sensitivity of dollarization to the price of oil, and the effect of the price of oil on the structure of the economy in the long-run equilibrium.