Fordham Economics graduate student, Juan Guarra-Salas, presented his paper “Government Investment and the Business Cycle in Oil-Exporting Countries”. The paper was presented in the 41st annual conference of the Eastern Economic Association which was held in New York City from Feb 26 to March 1, 2015.
The paper, which is also Juan’s Job Market Paper and part of his coming Dissertation, discusses how government that receive natural resource rents should design fiscal policy. Since a substantial fraction of oil-exporting countries GDP is tied to oil prices, the question of how oil prices shocks and government investment effect the economy has important policy implication. Juan says that the main thing that motivated him to explore this topic was “The drastic increase in government investment in my home country of Ecuador, an oil exporter, in the mid-to-late 2000s, a period of extraordinarily high oil prices”.
Juan examines Mexico and Norway, two small open oil-exporting countries, in order to estimate the effects of an oil price shock. He also develops a small open economy dynamic stochastic general equilibrium model (DSGE) which shows that a policy where the government builds a sovereign wealth fund with oil revenues and smoothes investment will protect the economy from oil prices instability and will generate longer lasting growth expansion. The result of the paper suggest that oil-exporting countries could limit a lot of the volatility in their economic activity by saving oil windfalls and delinking government investment from oil prices fluctuations.
Juan is expected to receive his Ph.D. this year and will join the Macroeconomic Analysis Division of the Central Bank of Chile in July 2015.
We would like to whish Juan, from all of us in the Economics Department at Fordham University, Congratulation and good luck!!