Oil and the World Economy: Some Possible Futures

Michael Kumhof and Dirk Muir

No 2012/256, IMF Working Papers from International Monetary Fund

Abstract: This paper, using a six-region DSGE model of the world economy, assesses the GDP and current account implications of permanent oil supply shocks hitting the world economy at an unspecified future date. For modest-sized shocks and conventional production technologies the effects are modest. But for larger shocks, for elasticities of substitution that decline as oil usage is reduced to a minimum, and for production functions in which oil acts as a critical enabler of technologies, GDP growth could drop significantly. Also, oil prices could become so high that smooth adjustment, as assumed in the model, may become very difficult.

Keywords: WP; current account; real interest rate; supply shock; production function; Exhaustible resources; fossil fuels; oil depletion; Hubbert’s Peak; externalities; oil price; price elasticity; elasticity of oil demand; demand and supply; Oil; Oil prices; Price elasticity; Demand elasticity; Oil production; Global; Asia and Pacific (search for similar items in EconPapers)
Pages: 31
Date: 2012-10-25
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Citations: View citations in EconPapers (19)

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