Abstrakt
The economic literature acknowledges that to avoid the resource curse, resourcerich countries should restrict Öscal expansion and save a signiÖcant part of resource revenues outside the domestic economy. However, in these countries governments tend to ine§ectively spend a considerable part of windfall revenues in the short run.
In this research I construct a DSGE model for a small, open economy to show that if Öscal indiscipline in the form of immediate responses to foreign resource revenue changes is inevitable, then monetary policy can help improve the allocation problem.