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Oil Dependence and Economic Instability

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  • Luís Francisco Aguiar-Conraria

    ()
    (Universidade do Minho - NIPE)

  • Yi Wen

    (Federal Reserve Bank of St. Louis)

Abstract

We show that dependence on foreign energy can increase economic instability by raising the likelihood of equilibrium indeterminacy, hence making fluctuations driven by self-fulfilling expectations easier to occur. This is demonstrated in a standard neoclassical growth model. Calibration exercises, based on the estimated share of imported energy in production for several countries, show that the degree of reliance on foreign energy for many countries can easily make an otherwise determinate and stable economy indeterminate and unstable.

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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 3/2007.

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Date of creation: 2007
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Handle: RePEc:nip:nipewp:3/2007

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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
Phone: +351-253604510 ext 5532
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Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
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Related research

Keywords: Indeterminacy; Energy Imports; Externality; Returns to Scale; Sunspots; Self-Fulfilling Expectations.;

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Cited by:
  1. erdogdu, oya safinaz, 2007. "The Effects of Energy Imports: The Case of Turkey," MPRA Paper 5413, University Library of Munich, Germany.
  2. Pereira, Vitor, 2007. "The possible impacts of energy imports in the economic growth of USA
    [Os Possíveis Impactos da Importação de Energia no Crescimento Económico dos EUA]
    ," MPRA Paper 4180, University Library of Munich, Germany.

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