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Oil and Unemployment in a New-Keynesian Model

Verónica Acurio Vásconez ()

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: The effects of oil shocks in inflation and growth have been widely discussed in the literature, however few have focused on the impact of oil price increases on unemployment. In order to shed some light on this problem, this paper develops a medium scale Dynamic Stochastic General Equilibrium model (DSGE) that allows for oil utilization in production and consumption as in Acurio-Vásconez (2015); unemployment as in Mortensen & Pissarides (1994); and staggered nominal wage contracting as in Gertler & Trigari (2009). It then analyzes the effects of oil price increases on the economy. The model recovers most of the well-known stylized facts observed after the oil shock in the 2000s'. A sensitivity analysis shows that the reduction of the bargaining power of households to negotiate wage contracts reduces the impact of an oil shock in unemployment, without affecting negatively GDP. However, it also shows that the reduction of bargaining power, together with wage flexibility strongly reduces the increase in unemployment after an oil shock, but causes a decrease in real wages, which reduces household income and affects GDP

Keywords: New-Keynesian model; DSGE; oil; CES; Match & Search Models; Unemployment (search for similar items in EconPapers)
JEL-codes: D58 E24 E32 Q43 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-05
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-ene and nep-mac
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ftp://mse.univ-paris1.fr/pub/mse/CES2015/15043.pdf (application/pdf)

Related works:
Working Paper: Oil and Unemployment in a New-Keynesian Model (2015) Downloads
Working Paper: Oil and Unemployment in a New-Keynesian Model (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:15043

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