The international transmission of oil price effects and OPEC's pricing policy

Jaime R. Marquez

No 256, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Analysis of oil-price effects generally maintain the assumption that oil-importers can be treated as small economies, which allows oil-price changes to be treated as exogenously set by OPEC. Analyses of oil-price determination rely on the assumption that the demand for oil is a stable function, which implies that real income of oil importers is unaffected by oil-price changes. Our analysis treats oil prices and economic activity as jointly determined. The effects of exogenous oil-price changes are studied in a simple theoretical world model. Hotelling's analysis is generalized to allow for both oil-price feedback effects and stabilization policies.

Date: 1985
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