A Repayment Model of House Prices Oil Price Dynamics in a Real Business Cycle Model

Vipin Arora () and Pedro Gomis-Porqueras

No 11-11, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: We show the importance of endogenous oil prices and production in the real business cycle framework. Endogenising these variables improves the model's predictions of business cycle statistics, oil related and non-oil related, relative to a situation where either is exogenous. This result is robust to the standard extensions (variable capacity utilisation and monopolistic competition) used in the literature. In particular, we first show that with either exogenous oil prices or production the standard real business cycle model and variants cannot match the oil-related and business cycle facts. In contrast, when both of these variables are endogenous, we can substantially improve the corresponding co-movements and slightly improve standard business cycle properties for consumption and investment.

Keywords: Oil price; two regions; variable capacity utilization (search for similar items in EconPapers)
JEL-codes: E37 F47 Q43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ene, nep-mac and nep-ure
Date: 2011-06
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Working Paper: Oil Price Dynamics in a Real Business Cycle Model (2011)
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