Counterfactual Analyses of Oil Price Shocks using a World Model
AbstractOil price shocks have played a dominant role in the macroeconomic development of the world economy over the last twenty five years. In this paper a large, estimated, macro-economic world model with time varying trade weights, monetary and fiscal policy rules and explicit modelling of the behaviour of the OPEC countries is used for counterfactual analyses of oil price shocks. An alternative history with constant real oil prices is developed, showing that the recessions in the OECD area in 1974/75 and in 1980 would have been milder without the preceding oil price hike, while the 1982 recession seems unrelated to oil prices. A separate simulation indicates that the oil price drop in 1985/86 prevented a small recession from developing. The paper also shows that macroeconomic oil price effects vary considerably between the US, Germany and Japan according to the degree of oil dependence, trade with OPEC and the working of domestic labour markets. In particular there are notable differences in inflationary effects in Germany and the US. Results are tested against alternative specifications of monetary and fiscal policy rules.
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 177.
Date of creation: Jul 1996
Date of revision:
Oil price shocks; Macro-economic model; Policy rules;
Find related papers by JEL classification:
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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