The Mining Boom, Productivity Paradox, Dutch Disease & Monetary Policy Challenges for Australia

Neil Dias Karunaratne
Neil Dias Karunaratne * §
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§ The University of Queensland The University of Queensland

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The Mining Boom, Productivity Paradox, Dutch Disease & Monetary Policy Challenges for Australia

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Abstract

Australia is currently on the cusp of the biggest mining boom in its history powered by demand from the fast growing mega Asian economies. However, productivity has slumped in 2000 decade compared to the previous despite a record increase in the terms-of-trade and capital investment in the mining sector. The appreciation of the real exchange rate due to spending effects of the booming mining sector and deindustrialisation of the lagging manufacturing sector by undermining the international competitiveness of manufactured exports has infected the Australian economy with Dutch Disease effects. Policy designers face the daunting task of designing appropriate adjustment policies that should groom manufacturing industries with productivity generation learning-by-doing economies, whilst at the same time implementing monetary policies that would keep inflation within the target zone. The paper sheds light on the issues relating to the designing g monetary policy in the context of productivity augmenting time-varying NAIRU using a New Keynesian Phillips curve framework. State space methodology and Kalman Filer has been used to empirically validate the model. Various policy options besides a Taylor rule for keeping inflation within the target zone and policy options to prevent the resource boom from turning to a resource curse are also commented on.

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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

Data Availability

Not applicable for this article.

How to Cite This Article

Neil Dias Karunaratne. 2014. "The Mining Boom, Productivity Paradox, Dutch Disease & Monetary Policy Challenges for Australia". Global Journal of Management and Business Research - B: Economic & Commerce GJMBR-B Volume 14 (GJMBR Volume 14 Issue B2).

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Journal Specifications

Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

Keywords
deindustrializationdutch diseaseinflation targetingmining boomnew keynesian phillips curveproductivity conundrumStatetime-varying nairu
Classification
GJMBR-B Classification FOR Code: C22
C50
E31
E51
F32
O56
  • Submission ReceivedDecember 13, 2013
  • Peer Review Double Blind
    Handling Editor
  • Accepted December 31, 2013
  • Published January 15, 2014
Version of record

v1.2

Issue date
April 23, 2014

Language
English
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The Mining Boom, Productivity Paradox, Dutch Disease & Monetary Policy Challenges for Australia

Neil Karunaratne
Neil Karunaratne The University of Queensland
  • Submission ReceivedDecember 13, 2013
  • Peer Review Double Blind
    Handling Editor
  • Accepted December 31, 2013
  • Published January 15, 2014