Agency costs, oil shocks, and real business cycles for an oil-exporting country: The case of Canada

The objective of this paper is to construct a model that is capable of replicating many stylized facts of a small open economy. The model incorporates asymmetric information in the financial market, capital adjustment costs, and an oil sector. In contrast to previous work, the model is set up such that the economy is an oil-exporting country. It also analyzes the effects of three shocks, namely traded productivity shock, oil productivity shock, and oil price shock, on different macroeconomic variables.;The first chapter evaluates in details the statistical moments of a dynamic stochastic general equilibrium (DSGE) model that includes an oil sector. It also analyzes the effects of the three shocks under symmetric information. The paper uses two classes of preferences; logarithmic and Greenwood, Hercowitz, and Huffman (GHH). I find that oil plays an important role in the correlation between trade balance with GDP and the variation of the terms of trade. The study also confirms the existence of Dutch disease as a result of an oil price shock. The oil productivity shock, however, increases the output in both traded and oil sector.;The second chapter introduces agency cost and asymmetric information in the financial market. It evaluates the statistical moments of the DSGE model that includes both agency cost and an oil sector. It also analyzes the effects of the three shocks under both symmetric and asymmetric information. The model performs very well in replicating the variance of consumption and the terms of trade, the correlation of trade balance with GDP, and the correlation of all macro-variables (except consumption) with the terms of trade. With an agency cost, the results show that overall output responses propagate and investment responses amplify to both oil shocks. Opposite to one sector model, the investment response to traded productivity shock does not amplify since oil sector is more capital intensive.;The third chapter is an econometric study that investigates the factors that affect inflation in the GCC region by examining the inflationary processes in Saudi Arabia and Kuwait. The paper utilizes a model that accounts for foreign factors affecting inflation, such as trading partners' inflation and exchange rate pass-through effect, as well as domestic influences. The analysis concludes that, in the long run, higher inflation in trading partners' countries is the main driving force for inflation in the two countries, with significant but lower contributions from the exchange rate pass-through effect and oil prices. Demand and money supply shocks affect inflation in the short run.