Dutch Disease in Australia: Policy Options for a Three-Speed Economy

Dutch Disease refers to the adverse effects through real exchange rate appreciation that the mining boom can have on various export- and import-competing industries. The distinction is made between the booming sector (mining), the lagging sector (exports not part of the booming sector and import-competing goods and services) and the non-tradeable sector. What should the government do to reduce this Dutch disease? The principal options are: do nothing, piecemeal protectionism, moderate exchange rate effects by running a fiscal surplus, combined with lowering the interest rate, and possibly establishing a sovereign wealth fund. The costs of the latter measures may be considerable.