Today's @bopinion post is about Nigeria. I expect its conclusions will not come as a surprise to most Nigerians, but it's good for Americans to be thinking about Nigeria and its problems.https://www.bloomberg.com/view/articles/2018-10-16/how-nigeria-can-escape-the-natural-resource-curse …
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If there is such a thing, it's not going to go away by managing the resource curse. If income per head rises, this bids up the price of non-traded goods, real exchange rate rises. Cost of haircuts kept down by impoverished citizens.
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Wait, how is that relevant? Idea of exchange rate depreciation is to force the economy to diversify.
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Suppose there is no nominal price stickiness. [In very long run that's plausibly true]. Then the RER is just whatever it is. If traded goods prices are equalized in competitive markets [a stretch] then RER=nontraded[home]/nontraded[foreign].
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Ah. Yes, you have to make sure traded goods prices *aren't* equalized. If necessary, through capital controls. But sometimes just monkeying with the nominal exchange rate is enough.
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I don't think that kind of sand in the wheel will be beneficial. But certainly you will get a kick from loose monetary policy, say, for quite a while. Anyway all this is new open economy macro, subject to all the 'puzzles'.
End of conversation
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