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Anticipated and Unanticipated Oil Price Increases and the Current Account

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  • Nancy Peregrim Marion

Abstract

This paper examines the current-account response to anticipated future increases in real oil prices as well as to unexpected increases which may be temporary or permanent in nature. The analysis is conducted using an intertemporal two-period model of a small open economy which produces both traded and nontraded goods and imports its oil. The paper identifies the channels through which various types of oil price increases affect the current account. The inclusion of nontraded investment and consumer goods permits oil price increases to generate intertemporal and static substitution effects in production and consumption which alter net international saving. Moreover, the relative oil-value-added ratio in the traded and nontraded sectors plays a crucial role in shaping these substitution effects and hence the current-account response.

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File URL: http://www.nber.org/papers/w0759.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0759.

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Date of creation: Sep 1981
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Publication status: published as Marion, Nancy Peregrim. "Nontraded Goods, Oil Price Increases and the Current Account." Journal of International Economics, Vol. 16, No. 1/2, (February 1984), pp. 29-44.
Handle: RePEc:nbr:nberwo:0759

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  1. Jeffrey D. Sachs, 1980. "Energy and Growth under Flexible Exchange Rates: A Simulation Study," NBER Working Papers 0582, National Bureau of Economic Research, Inc.
  2. Buiter, Willem H, 1978. "Short-run and Long-run Effects of External Disturbances under a Floating Exchange Rate," Economica, London School of Economics and Political Science, vol. 45(179), pages 251-72, August.
  3. Ronald E. Findlay & Carlos Alfredo Rodriguez, 1977. "Intermediate Imports and Macroeconomic Policy under Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 208-17, May.
  4. Berndt, Ernst R & Wood, David O, 1979. "Engineering and Econometric Interpretations of Energy-Capital Complementarity," American Economic Review, American Economic Association, vol. 69(3), pages 342-54, June.
  5. Maurice Obstfeld, 1980. "Intermediate Imports, the Terms of Trade, and the Dynamics of the Exchange Rate and Current Account," NBER Working Papers 0540, National Bureau of Economic Research, Inc.
  6. Louka T. Katseli & Nancy Peregrim Marion, 1980. "Adjustment to Variations in Imported Input Prices: The Role of Economic Structure," NBER Working Papers 0501, National Bureau of Economic Research, Inc.
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Cited by:
  1. Nancy Peregrim Marion & Lars E.O. Svensson, 1982. "Structural Differences and Macroeconomic Adjustment to Oil Price Increases in a Three-Country Model," NBER Working Papers 0839, National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld, 1981. "Transitory terms-of-trade shocks and the current account: the case of constant time preference," International Finance Discussion Papers 194, Board of Governors of the Federal Reserve System (U.S.).
  3. Jagdeep Bhandari, 1984. "A computational stochastic equilibrium model of oil-importing economies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 120(2), pages 301-328, June.

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