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Oil Dependence and Economic Instability

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Author Info
Luís Francisco Aguiar-Conraria () (Universidade do Minho - NIPE)
Yi Wen (Federal Reserve Bank of St. Louis)

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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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File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2007/NIPE_WP_3_2007.PDF
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Publisher 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.;

Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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This page was last updated on 2009-11-21.

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