Optimal macroeconomic policy in resource abundant countries

This paper is devoted to the optimal macroeconomic policy in resource abundant countries, especially how much reserves should be accumulated in resource abundant economics during the windfall of revenue to insure themselves during the financial crisis. This research is relevant and interesting because countries, which export natural resources, significantly increased the amount of international reserves during last 10 years. The aim of this work is to determine the optimal level of international reserves, which would be a solution of the central bank function. This function minimizes the sum of the opportunity cost of reserves and losses during the crisis. It was found out whether the policy is the accumulation of international reserves in the last 10 years effective for such resource abundant country as Russia in terms of choice between liquid and illiquid assets.

The main approaches and challenges to resource allocation of resource revenues in countries were introduced in the theoretical part and describes. An empirical evidence that the majority of resource countries accumulate international reserves during periods of high prices of natural resources in the past decade was presented. As a basic framework the model elaborated in Prabheesh ( 2013 ) was taken. After that the optimal level of international reserves of Russia between 2004 and 2013 was estimated. The optimal level of international reserves was considered in terms of compensation for losses in output during the stop of capital flows into the country. It was found that the optimal level of reserves depends on the probability of a crisis, the opportunity cost of reserves and losses during the crisis.

As a result of the empirical study, it was found that Russia had accumulated insufficient reserves until 2010, but after 2010 the level of international reserves exceed the optimal level from the model described in this work . It was also found that the hypothesis of equality of the optimal level of reserves and the actual numbers is rejected , however, the correlation between two series of values ​​is high enough. This result can be explained by the fact that took into consideration only precautionary motive, indirectly taking into account the motive of maintaining the real exchange rate.