Productivity, Energy Prices and the Great Moderation: A New Link

Rajeev Dhawan (rdhawan@gsu.edu), Karsten Jeske and Pedro Silos
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Karsten Jeske: Mellon Capital Management

Review of Economic Dynamics, 2010, vol. 13, issue 3, 715-724

Abstract: We build upon recent research that attributes the moderation of output volatility since the 1980s to the reduced volatility of the Total Factor Productivity (TFP) by investigating the linkage between energy price fluctuations and the stochastic process for TFP. First, we estimate a joint stochastic process for the energy price and TFP and establish that until around 1982, energy prices negatively affected TFP. This spillover has since disappeared. Second, we show that within the framework of a Dynamic Stochastic General Equilibrium (DSGE) model, the disappearance of this energy-productivity spillover accounts for close to 68 percent of the moderation in output volatility. (Copyright: Elsevier)

Keywords: Productivity; Energy price; Great moderation; Business cycles; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C22 E32 Q43 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (21)

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DOI: 10.1016/j.red.2009.07.001

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