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International business cycles: quantifying the effects of a world market for oil

Author

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  • Gars, Johan

    (GEDB, Royal Swedish Academy of Sciences)

  • Olovsson, Conny

    (Research Department, Central Bank of Sweden)

Abstract

To what extent is the international business cycle affected by the fact that an essential input (oil) is traded on the world market? We quantify the contribution of oil by setting up a model with separate shocks to efficiencies of capital/labor and oil, as well as global shocks to the oil supply. We find that the shocks to the supply and the efficiency of oil both contribute to positive comovements. These two shocks are also relatively transitory, which induces high responses in output and low responses in consumption. As a consequence, the model resolves both the consumption correlation puzzle and the international comovement puzzle.

Suggested Citation

  • Gars, Johan & Olovsson, Conny, 2017. "International business cycles: quantifying the effects of a world market for oil," Working Paper Series 340, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0340
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    References listed on IDEAS

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    More about this item

    Keywords

    International comovements; business cycles; oil; productivity;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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