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Sources of Business Cycles in Energy Producing Economies – The case of Norway and United Kingdom

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Abstract

This paper analyses the sources of business cycles in economies that have an important energy producing sector. Especially, I investigate the effects of oil and gas extractions (energy booms) on the manufacturing sector, and analyse whether there is any evidence of a "Dutch disease", that is whether energy booms have had adverse effects on the manufacturing base. In additions to energy booms, I identify three other types of disturbances in the economy; aggregate demand, supply and oil price shocks. The different structural disturbances are identified by imposing long-run and short-run (zero) restrictions on a vector autoregressive model. The analysis is applied to Norway and United Kingdom, which both discovered huge oil resources in the North Sea in the 1970s. There is no evidence of a Dutch disease in Norway, and manufacturing output has actually benefited from both energy discoveries and higher oil prices. In UK on the other hand, manufacturing output has declined in response to energy booms, although the effect is small compared to the effects of the other shocks that are present at the time.

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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 179.

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Date of creation: Aug 1996
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Handle: RePEc:ssb:dispap:179

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Keywords: Dutch disease; dynamic restrictions; structural vector autoregression.;

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  1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
  2. Willem H. Buiter & Marcus Miller, 1983. "Changing the Rules: Economic Consequences of the Thatcher Regime," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(2), pages 305-380.
  3. F.J. Atkinson & S.J. Brooks & S.G.F. Hall, 1983. "The Economic Effects of North Sea Oil," National Institute Economic Review, National Institute of Economic and Social Research, vol. 104(1), pages 38-44, May.
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  5. Tor Jakob KLETTE & Astrid MATHIASSEN, 1996. "Job Creation, Job Destruction and Plant Turnover in Norvegian Manufacturing," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 97-125.
  6. Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-84, June.
  7. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Lippi, Marco & Reichlin, Lucrezia, 1993. "The Dynamic Effects of Aggregate Demand and Supply Disturbances: Comment," American Economic Review, American Economic Association, vol. 83(3), pages 644-52, June.
  9. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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  12. Michael Bruno & Jeffrey Sachs, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," NBER Working Papers 0852, National Bureau of Economic Research, Inc.
  13. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December.
  14. Eastwood, R K & Venables, A J, 1982. "The Macroeconomic Implications of a Resource Discovery in an Open Economy," Economic Journal, Royal Economic Society, vol. 92(366), pages 285-99, June.
  15. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  16. Neary, J Peter & van Wijnbergen, S, 1984. "Can an Oil Discovery Lead to a Recession? A Comment," Economic Journal, Royal Economic Society, vol. 94(374), pages 390-95, June.
  17. Bruno, Michael & Sachs, Jeffrey, 1982. "Energy and Resource Allocation: A Dynamic Model of the "Dutch Disease"," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 845-59, Special I.
  18. Artis, Michael J & Kontolemis, Zenon G & Osborn, Denise R, 1997. "Business Cycles for G7 and European Countries," The Journal of Business, University of Chicago Press, vol. 70(2), pages 249-79, April.
  19. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November.
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