A note on oil dependence and economic instability

Luís Aguiar-Conraria () and Yi Wen

No 2006-060, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self-fulfilling expectations easier to occur. This is demonstrated in a standard neoclassical growth model. Calibration exercises, based on the estimated share of imported energy in production for several countries, show that the degree of reliance on foreign energy for many countries can easily make an otherwise determinate and stable economy indeterminate and unstable.

Keywords: Petroleum industry and trade; Economic stabilization (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ene and nep-int
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Journal Article: A NOTE ON OIL DEPENDENCE AND ECONOMIC INSTABILITY (2008)
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DOI: 10.20955/wp.2006.060

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