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Productivity, Energy Prices and the Great Moderation: A New Link

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  • Pedro Silos

    (Federal Reserve Bank of Atlanta)

  • Karsten Jeske

    (Federal Reserve Bank of Atlanta)

  • Rajeev Dhawan

    (Georgia State University)

Abstract

We study how total factor productivity (TFP), energy prices and the great moderation are linked. First, we estimate a joint stochastic process for the energy price and TFP and establish that until 1982:II, energy prices negatively affected productivity. This spill-over has since disappeared. Second, we show that within the framework of a Dynamic Stochastic General Equilibrium (DSGE) model, the disappearance of this energy-productivity spill-over generates the significantly lower volatility of output and its components. Specifically, the change in the joint stochastic process accounts for close to 70 percent of the moderation in output volatility.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 877.

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Date of creation: 2008
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Handle: RePEc:red:sed008:877

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References

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  1. Jordi Gali & Luca Gambetti, 2008. "On the Sources of the Great Moderation," NBER Working Papers 14171, National Bureau of Economic Research, Inc.
  2. Sylvain Leduc & Keith Sill, 2007. "Monetary Policy, Oil Shocks, and TFP: Accounting for the Decline in U.S. Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 595-614, October.
  3. Kilian, Lutz, 2007. "The Economic Effects of Energy Price Shocks," CEPR Discussion Papers 6559, C.E.P.R. Discussion Papers.
  4. Rajeev Dhawan & Karsten Jeske & Pedro Silos, 2008. "Productivity, energy prices, and the Great Moderation: a new link," Working Paper 2008-11, Federal Reserve Bank of Atlanta.
  5. Michael T. Owyang & Jeremy M. Piger & Howard J. Wall, 2007. "A state-level analysis of the Great Moderation," Working Papers 2007-003, Federal Reserve Bank of St. Louis.
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Cited by:
  1. Jambu, Marc-Antoine, 2010. "Has the Globalisation really generated more competition in OECD economies," MPRA Paper 19974, University Library of Munich, Germany.
  2. Rajeev Dhawan & Karsten Jeske & Pedro Silos, 2008. "Productivity, energy prices, and the Great Moderation: a new link," Working Paper 2008-11, Federal Reserve Bank of Atlanta.
  3. Fischer, Carolyn & Heutel, Garth, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," Working Papers 13-2, University of North Carolina at Greensboro, Department of Economics.
  4. William T. Gavin & Benjamin D. Keen & Finn E. Kydland, 2013. "Monetary policy, the tax code, and the real effects of energy shocks," Working Papers 1304, Federal Reserve Bank of Dallas.
  5. Finn E. Kydland & Fei Mao & William T. Gavin, 2011. "Monetary Policy, the Tax Code, and Energy Price Shocks," 2011 Meeting Papers 1160, Society for Economic Dynamics.
  6. Yazid Dissou & Lilia Karnizova & Qian Sun, 2012. "Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function," Working Papers 1214E, University of Ottawa, Department of Economics.

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