An Amplification Mechanism in a Model of Energy

Anna Kormilitsina ()

No 1511, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: This paper investigates a propagation mechanism of the energy price shock in a model where capital utilization is associated with costly energy consumption. Endogenous depreciation is an important element of the model, as it has been shown to produce a significant negative effect of energy prices on output. I show that the amplifying effect of endogenous depreciation is determined by the choice of the functional form and calibration strategy for the energy cost function. My estimates of the energy cost function allow to conclude that the energy price shock has only a moderate effect on output in this model, while endogenous depreciation mitigates rather than amplifies the effect of the energy price shock.

Keywords: energy price; oil price shock; RBC model; endogenous depreciation (search for similar items in EconPapers)
JEL-codes: E32 Q43 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-dge, nep-ene and nep-mac
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Related works:
Journal Article: An amplification mechanism in a model of energy (2016)
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