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The effect of oil prices on potential growth

Author

Listed:
  • Ángel Estrada

    (Banco de España)

  • Pablo Hernández de Cos

    (Banco de España)

Abstract

Oil prices have fluctuated considerably in the last few years, with major effects on the economy. This paper describes some of the mechanisms by which these fluctuations produce changes in the long-run growth of the economy. In particular, it analyses the effect on productivity, capital stock and structural unemployment. The analysis suggests that a (permanent) increase in oil prices can significantly reduce potential output. From an economic policy point of view, this effect may be more marked when competition in the product markets is low or when wage indexation is high; thus, reforms aiming to increase competition and improve wage-setting mechanisms help to reduce the negative effects of higher oil prices on long-run economic growth.

Suggested Citation

  • Ángel Estrada & Pablo Hernández de Cos, 2009. "The effect of oil prices on potential growth," Occasional Papers 0902, Banco de España.
    • Handle: RePEc:bde:opaper:0902
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/09/do0902e.pdf
    File Function: First version, February 2009
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    Citations

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    Cited by:

    1. José Francisco Bellod Redondo, 2011. "La función de producción de Cobb-Douglas y la economía española," Revista de Economía Crítica, Asociación de Economía Crítica, vol. 12, pages 9-38.

    More about this item

    Keywords

    oil price; potential output; production function;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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