Price Movement and Anti-inflation Policy under Conditions of “Dutch Disease”

Abstract

The article analyzes the mechanism of price change under conditions of "Dutch disease" using the model of centrally planned open economy - net exporter of raw materials. Characteristics of this mechanism are investigated when growth of raw material resources as well as external trade prices increases take place. If the three principles of monetary policy are fulfilled, then, firstly, growth of raw material resource causes increase in price and wage levels in case of zero output of tradable product, and, secondly, the growth of raw material prices leads to increase in price and wage levels in case of any output of tradable product. However, the inflation is caused not by "Dutch disease" itself, but by the rigidity of prices, wages and exchange. It is possible to reduce the inflation by lowering taxes on wages or subsidizing them from rental budget income. А non-monetary anti-inflation package for Russia is recommended.