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Oil dependence and Economic Instability

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  • Yi Wen

    (Federal Reserve Bank of St. Louis)

  • Luis Aguiar-Conraria

    (NIPE - Universidade do Minho)

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 Society for Economic Dynamics in its series 2007 Meeting Papers with number 151.

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Date of creation: 2007
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Handle: RePEc:red:sed007:151

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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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