Effects of oil price shocks on German business cycles
AbstractIn this paper we analyse to what extend movements in oil prices can help to explain business cycle fluctuations in Germany. To clarify whether oil price shocks have effects on real economic activity in Germany at all we use two different versions of a real business cycle model namely a closed and a small open economy version and introduce oil as an additional factor in the production function. Like in the related literature (Kim and Loungani 1992; de Miguel et al. 2003) in both versions oil price shocks have effects on real economic activity. In a second step we use these models to analyse whether the effects of oil price movements have changed over time. Our hypothesis is that the effects decreased since the seventies because oil use became a less important factor for industrial production. Therefore we split our data set into two subperiods namely from 1970 to 1986 and from 1987 to 2000 and calibrate our models to both subsets. In this model economy oil price shocks contribute substantially to business cycle fluctuations in the seventies and early eighties but only to a very limited extend in the late eighties and nineties
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 212.
Date of creation: 11 Nov 2005
Date of revision:
oil prices; business cycles; small open economy;
Other versions of this item:
- Torsten Schmidt & Tobias Zimmermann, 2005. "Effects of Oil Price Shocks on German Business Cycles," RWI Discussion Papers 0036, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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