Energy Prices and Business Cycles: Lessons from a Simulated Small Open Economy Model

Torsten Schmidt and Tobias Zimmermann

OECD Journal: Journal of Business Cycle Measurement and Analysis, 2012, vol. 2011, issue 2, 29-47

Abstract: Despite energy price hikes in recent years, growth rates turned out to be high in most industrialised countries. This pattern starkly contrasts the adverse effects that energy price shocks exerted on growth in the 1970s and 1980s. This study investigates whether a reduction in the energy cost share or different sources of energy price hikes are responsible for this divergence. By adding an exogenous twovariable VAR to a new open economy model for Germany, both energy prices and global economic activity are specified to be independent from domestic variables but assumed to influence each other. We show that it is sensible to calibrate the model in accordance with long-run fluctuations in important, observable, structural parameters and VAR coefficients on a period by period basis. Increases in energy prices and in global output serve as supply side and demand side shocks respectively. Our results suggest that the effects of recent energy price hikes have been different from past experiences because they were demand driven. Therefore, supply driven energy price increases could still be an important source of business cycle fluctuations. JEL Classifications: E31, E32, F41 Keywords: Oil prices, new Keynesian open economy model

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1787/jbcma-2011-5kg0nvzmgfd5 (text/html)
Full text available to READ online. PDF download available to OECD iLibrary subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oec:stdkab:5kg0nvzmgfd5

Access Statistics for this article

More articles in OECD Journal: Journal of Business Cycle Measurement and Analysis from OECD Publishing, Centre for International Research on Economic Tendency Surveys Contact information at EDIRC.
Bibliographic data for series maintained by ().