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Energy and the Macroeconomy: The Role of Consumer Durables

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  • Karsten Jeske
  • Rajeev Dhawan

Abstract

So far the literature on DSGE models with energy price shocks models energy on the production side only. In these models, energy shocks are responsible for only a negligible share of output fluctuations. We study the robustness of this finding. The aim of our paper is to model the response of household behavior to energy shocks. Specifically, in addition to energy on the production side, we explicitly model private consumption of energy, durable goods and non-durable goods in a DSGE model. We calibrate the model to match energy and durable goods consumption observed in U.S. data and simulate the economy to compare business cycle statistics to those coming from an economy without durable goods. We find that modeling private energy consumption as a complement to durable goods consumption does not significantly raise the share of output fluctuations coming from energy shocks. TFP shocks continue to be the driving force behind business cycles

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 719.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:719

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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Keywords: Energy Prices; Business Cycles; Durable Goods;

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  1. Peter Rupert & Richard Rogerson & Randall Wright, 1994. "Estimating substitution elasticities in household production models," Staff Report 186, Federal Reserve Bank of Minneapolis.
  2. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June.
  3. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April.
  4. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May.
  5. Hamilton, James D & Herrera, Ana Maria, 2004. "Oil Shocks and Aggregate Macroeconomic Behavior: The Role of Monetary Policy: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(2), pages 265-86, April.
  6. Collard, Fabrice & Juillard, Michel, 2001. "Accuracy of stochastic perturbation methods: The case of asset pricing models," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 979-999, June.
  7. Nadenichek, Jon, 1999. "Consumer durable goods in an international real business cycle framework," The Quarterly Review of Economics and Finance, Elsevier, vol. 39(2), pages 233-247.
  8. Masao Ogaki & Carmen M. Reinhart, 1998. "Measuring Intertemporal Substitution: The Role of Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1078-1098, October.
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