Monetary Policy in Oil-Exporting Economy under Green Transformation

Recently, the world economy is shifting toward green production and making a realeffort to reduce pollution to the planet. There is a strong tendancy that the worldeconomy reduces the usage of polluting resources such as petrol, and increases thedemand for clean resources such as the solar energy. Under this context, oil-exportingcountries are facing a potential decline of demand from the world. By establishinga DSGE model, we study potential effects of monetary policies of an oil-exportingeconomy when there is shrinking demand for oil-products from the world. We fi ndthat conventional monetary policy loses its efficiency facing negative oil price shocks.However, supporting the non-oil sector by unconventional monetary policy such asquantitative easing to non-oil firms, is efficient to reduce the risk of recession.On the other hand, due to recent epidemic situation and political frictions, inter-national trade is highly impacted by the stagnation of global supply chain. We alsosimulate effects of negative supply shocks on imported goods, and find that comparedto the oil price shock, supply shock has a more profound impact on the economy, inwhich neither unconventional monetary policy nor the fiscal policy could have signif-icant effects to mitigate the impacts from negative supply shocks on imported goods.This fact gives a strong signal to the policy makers that supporting the non-oil sectorand makes the economic structure more balanced and less dependant to the externalworld, should be the priority in the coming decade.We believe that our work not only fits for oil-exporting economies, but has a moregeneral meaning for many commodity-exporting economies. It sends an message thatin the coming decade, one optimal strategy for growth is to balance the economybetween primary commodity sector and other domestic sectors by the instruments ofunconventional monetary policy or fiscal policy