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An amplification mechanism in a model of energy

Listed author(s):
  • Anna Kormilitsina

This paper investigates a propagation mechanism of the energy price shock in a model where capital utilization is associated with costly energy consumption. Endogenous depreciation is an important element of the model, as it has been shown to produce a significant negative effect of energy prices on output. I show that the amplifying effect of endogenous depreciation is determined by the choice of the functional form and calibration strategy for the energy cost function. My estimates of the energy cost function allow to conclude that the energy price shock has only a moderate effect on output in this model, while endogenous depreciation mitigates rather than amplifies the effect of the energy price shock.

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File URL: http://economics.ca/cgi/xms?jab=v49n4/CJEv49n4p1425.pdf
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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 49 (2016)
Issue (Month): 4 (November)
Pages: 1425-1440

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Handle: RePEc:cje:issued:v:49:y:2016:i:4:p:1425-1440
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  1. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-1174, December.
  2. Luís Aguiar-Conraria & Yi Wen, 2007. "Understanding the Large Negative Impact of Oil Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 925-944, 06.
  3. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
  4. Leduc, Sylvain & Sill, Keith, 2004. "A quantitative analysis of oil-price shocks, systematic monetary policy, and economic downturns," Journal of Monetary Economics, Elsevier, vol. 51(4), pages 781-808, May.
  5. Kim, In-Moo & Loungani, Prakash, 1992. "The role of energy in real business cycle models," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 173-189, April.
  6. Anna Kormilitsina, 2011. "Oil Price Shocks and the Optimality of Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 199-223, January.
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