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© 2022 International Monetary Fund
WP/22/224
IMF Working Paper
Western Hemisphere Department
Managing Guyana’s Oil Wealth: Monetary and Exchange Rate Policy Considerations
Prepared by Rina Bhattacharya
Authorized for distribution by Nicole Laframboise
November 2022
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: International oil producers have discovered commercially recoverable petroleum reserves of around 11 billion barrels that promise to transform Guyana’s agricultural and mining economy into an oil powerhouse, while hopefully helping to diversify the non-oil economy. Oil production presents a momentous opportunity to boost inclusive growth and diversify the economy providing resources to address human development needs and infrastructure gaps. At the same time, it presents important policy challenges relating to effective and prudent management of the nation’s oil wealth. This study focusses on one of these challenges: the appropriate monetary policy and exchange rate framework for Guyana as it transitions to a major oil exporter.
RECOMMENDED CITATION: Bhattacharya, Rina, 2022, Managing Guyana’s Oil Wealth: “Monetary and Exchange Rate Policy Considerations.” IMF Working Paper WP/22/224
| JEL Classification Numbers: | E42; E58 |
| Keywords: | monetary policy framework; Guyana; exchange rate policy |
| Author’s E-Mail Address: | RBhattacharya@imf.org |
| JEL Classification Numbers: | E42; E58 |
| Keywords: | monetary policy framework; Guyana; exchange rate policy |
| Author’s E-Mail Address: | RBhattacharya@imf.org |
Title Page
WORKING PAPERS
Managing Guyana’s Oil Wealth: Monetary and Exchange Rate Policy Considerations
Prepared by Rina Bhattacharya1
Contents
Executive Summary
Section I: Introduction
Section II: The Case for Maintaining a Stabilized Exchange Rate Arrangement
Section III: The Role for a More Flexible Exchange Rate Regime
Section IV: Drawbacks and Challenges of Adopting a More Flexible Exchange Rate Regime
Section V: Key Areas for Further Research
Section VI: Transitioning Towards a More Flexible Exchange Rate Regime
Section VII: Policy Conclusions
Annex I. Structural VAR: Technical Details
Annex II. Exchange Rate Pass-Through to CPI Inflation
Model Details
Unit Root Tests
The Auto Regressive Distributed Lag (ARDL) Model
VECM Estimation
Annex III. Evidence for Currency Substitution in Guyana
Annex IV. Price Elasticity of Guyana’s Exports
References
The author would like to thank, without implicating, Alina Carare, Nicole Laframboise, Moya Chin, Julia Otten, Neil Shenai, Manuk Ghazanchyan and WHD seminar participants for valuable comments and suggestions that helped to improve the paper. Minnie Park provided excellent research assistance, and Gray Ramos and Soungbe Coquillat provided excellent editorial assistance for this paper.