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A Note On Oil Dependence And Economic Instability

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  • Aguiar-Conraria, Luís
  • Wen, Yi

Abstract

We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self-fulfilling expectations easier to occur. This is demonstrated in a standard neoclassical growth model. Calibration exercises, based on the estimated share of imported energy in production for several countries, show that the degree of reliance on foreign energy for many countries can easily make an otherwise determinate and stable economy indeterminate and unstable.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 12 (2008)
Issue (Month): 05 (November)
Pages: 717-723

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Handle: RePEc:cup:macdyn:v:12:y:2008:i:05:p:717-723_07

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Cited by:
  1. Zhang, Yan & Chen, Yan, 2009. "Tariff and Equilibrium Indeterminacy - A Global Analysis," MPRA Paper 18296, University Library of Munich, Germany.
  2. Luís Aguiar-Conraria & Yi Wen, 2011. "OPEC’s oil exporting strategy and macroeconomic (in)stability," Working Papers 2011-013, Federal Reserve Bank of St. Louis.
  3. Zhang, Yan, 2008. "Tariff and Equilibrium Indeterminacy--(I)," MPRA Paper 8338, University Library of Munich, Germany.

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