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Productivity, Energy Prices and the Great Moderation: A New Link

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Author Info
Rajeev Dhawan (Georgia State University)
Karsten Jeske (Mellon Capital Management)
Pedro Silos (Federal Reserve Bank of Atlanta)

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Abstract

We build upon recent research that attributes the moderation of output volatility since the 1980s to the reduced volatility of the Total Factor Productivity (TFP) by investigating the linkage between energy price fluctuations and the stochastic process for TFP. First, we estimate a joint stochastic process for the energy price and TFP and establish that until around 1982, energy prices negatively affected TFP. This spillover has since disappeared. Second, we show that within the framework of a Dynamic Stochastic General Equilibrium (DSGE) model, the disappearance of this energy-productivity spillover accounts for close to 68 percent of the moderation in output volatility. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2009.07.001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

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Related research
Keywords: Productivity; Energy price; Great moderation; Business cycles; Bayesian estimation;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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  3. Collard, Fabrice & Juillard, Michel, 2001. "Accuracy of stochastic perturbation methods: The case of asset pricing models," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 979-999, June. [Downloadable!] (restricted)
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  6. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
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  7. Rajeev Dhawan & Karsten Jeske & Pedro Silos, 2008. "Productivity, energy prices, and the Great Moderation: a new link," Working Paper 2008-11, Federal Reserve Bank of Atlanta. [Downloadable!]
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  16. Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez, 2007. "Estimating Macroeconomic Models: A Likelihood Approach," Review of Economic Studies, Blackwell Publishing, vol. 74(4), pages 1059-1087, October. [Downloadable!] (restricted)
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  17. Sylvain Leduc & Keith Sill, 2007. "Monetary Policy, Oil Shocks, and TFP: Accounting for the Decline in U.S. Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 595-614, October. [Downloadable!] (restricted)
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  18. Mark A. Hooker, 1999. "Oil and the macroeconomy revisited," Finance and Economics Discussion Series 1999-43, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  20. Herrera, Ana Mar?a & Pesavento, Elena, 2009. "Oil Price Shocks, Systematic Monetary Policy, And The ?Great Moderation?," Macroeconomic Dynamics, Cambridge University Press, vol. 13(01), pages 107-137, February. [Downloadable!]
  21. Linnea Polgreen & Pedro Silos, 2006. "Crude substitution: the cyclical dynamics of oil prices and the college premium," Working Paper 2006-14, Federal Reserve Bank of Atlanta. [Downloadable!]
  22. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, vol. 50(1), pages 185-213, February. [Downloadable!] (restricted)
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  23. Lutz Kilian, 2009. "Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market," American Economic Review, American Economic Association, vol. 99(3), pages 1053-69, June. [Downloadable!]
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  24. Hamilton, James D., 2003. "What is an oil shock?," Journal of Econometrics, Elsevier, vol. 113(2), pages 363-398, April. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rajeev Dhawan & Karsten Jeske & Pedro Silos, . "Productivity, Energy Prices and the Great Moderation: A New Link," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. [Downloadable!] (restricted)
    Other versions:
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