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Oil and macroeconomic (in)stability

Hilde Bjørnland (), Vegard Larsen and Junior Maih ()

No No 6/2017, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: We analyze the role of oil price volatility in reducing U.S. macroeconomic instability. Using a Markov Switching Rational Expectation New-Keynesian model we revisit the timing of the Great Moderation and the sources of changes in the volatilityof macroeconomic variables. We find that smaller or fewer oil price shocks did not play a major role in explaining the Great Moderation. Instead oil price shocksare recurrent sources of economic fluctuations. The most important factor reducing overall variability is a decline in the volatility of structural macroeconomic shocks. A change to a more responsive (hawkish) monetary policy regime also played a role.

Keywords: Oil price; Great Moderation; New-Keynesian model; Markov Switching (search for similar items in EconPapers)
Pages: 52 pages
Date: 2017-11
New Economics Papers: this item is included in nep-ene
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Related works:
Journal Article: Oil and Macroeconomic (In)stability (2018) Downloads
Working Paper: Oil and macroeconomic (in)stability (2017) Downloads
Working Paper: Oil and macroeconomic (in)stability (2016) Downloads
Working Paper: Oil and macroeconomic (in)stability (2015) Downloads
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