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Productivity, energy prices, and the Great Moderation: a new link

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  • Rajeev Dhawan
  • Karsten Jeske
  • Pedro Silos

Abstract

We study how total factor productivity (TFP), energy prices, and the Great Moderation are linked. First we estimate a joint stochastic process for the energy price and TFP and establish that until the second quarter of 1982, energy prices negatively affected productivity. This spillover has since disappeared. Second, we show that within the framework of a dynamic stochastic general equilibrium model, the disappearance of this energy-productivity spillover generates the significantly lower volatility of output and its components. Specifically, the change in the joint stochastic process accounts for close to 70 percent of the moderation in output volatility.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2008-11.

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Date of creation: 2008
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Handle: RePEc:fip:fedawp:2008-11

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Keywords: Productivity;

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Citations

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Cited by:
  1. William T. Gavin & Benjamin D. Keen & Finn E. Kydland, 2013. "Monetary policy, the tax code, and the real effects of energy shocks," Working Papers 1304, Federal Reserve Bank of Dallas.
  2. Munechika Katayama, 2013. "Declining Effects of Oil Price Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 977-1016, 09.
  3. 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.
  4. Fischer, Carolyn & Heutel, Garth, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," Working Papers 13-2, University of North Carolina at Greensboro, Department of Economics.
  5. Jambu, Marc-Antoine, 2010. "Has the Globalisation really generated more competition in OECD economies," MPRA Paper 19974, University Library of Munich, Germany.
  6. Finn E. Kydland & Fei Mao & William T. Gavin, 2011. "Monetary Policy, the Tax Code, and Energy Price Shocks," 2011 Meeting Papers 1160, Society for Economic Dynamics.
  7. Yazid Dissou & Lilia Karnizova & Qian Sun, 2012. "Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function," Working Papers 1214E, University of Ottawa, Department of Economics.

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