The Role of the National Wealth Fund in Managing Oil Revenues: Evidence from a Two-Country DSGE Model
Keywords:
National Wealth Fund, Two-Country DSGE Model, Oil Revenue ManagementAbstract
This study aims to examine how a national wealth fund moderates the transmission of oil shocks and reduces macroeconomic volatility in an oil-exporting economy and its oil-importing trading partner. A two-country New Keynesian dynamic stochastic general equilibrium (DSGE) model is developed and calibrated, consisting of an oil-exporting economy endowed with a national wealth fund and an oil-importing economy. Two fiscal scenarios are analyzed: one in which oil revenues directly finance government expenditure, and another in which revenues are saved in the wealth fund and only partial returns are transferred to the budget. The model is solved using calibration based on annual macroeconomic data. Impulse response analysis indicates that the presence of a national wealth fund significantly dampens fluctuations in output, consumption, investment, and inflation following oil production, oil price, and export share shocks. Moreover, the cross-border transmission of oil shocks to the importing economy is notably weaker under the wealth fund regime. National wealth funds function as effective fiscal stabilization mechanisms by smoothing public spending, mitigating oil revenue volatility, and enhancing macroeconomic stability in both oil-exporting and oil-importing economies.
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Copyright (c) 2025 Javid Bahrami (Corresponding author); Marjan Soltani (Author)
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