Oil Price Shocks, Unemployment, Investment and the Current Account: An Intertemporal Disequilibrium Analysis

Sweder van Wijnbergen

No 65, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use an intertemporal model incorporating short-run labour and goods markets disequilibrium to analyse the consequences of oil price shocks for unemployment, investment and the current account. A dominant transfer element leads to Keynesian unemployment now and deterioration tomorrow in the final-goods terms of trade. A dominant supply-shock element leads to classical unemployment now and an improvement tomorrow in the final-goods terms of trade. Investment falls if there is classical unemployment but increases in the K-region under Putty-Clay technology. Current account deficits are larger in the K-region than in the C-region. If world interest rates fall, investment accelerates in the K-region but not in the C-region. We use these results to explain observed differences in response to oil shocks.

Keywords: Classical Unemployment; Disequilibrium; Factor Price Changes; Keynesian Unemployment; Stabilization Policy (search for similar items in EconPapers)
Date: 1985-06
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Journal Article: Oil Price Shocks, Unemployment, Investment and the Current Account: An Intertemporal Disequilibrium Analysis (1985)
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