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Oil shocks and external adjustment

  • Bodenstein, Martin
  • Erceg, Christopher J.
  • Guerrieri, Luca

We examine the effects of endogenously determined oil price fluctuations in a two-country DSGE model. Under incomplete financial markets, an oil market-specific shock that boosts the oil price results in a wealth transfer toward oil exporters, depresses the oil importer's consumption, and causes the oil importer's real exchange rate to depreciate. Although the oil importer experiences a deterioration in the oil component of its trade balance, an improvement in the nonoil balance substantially dampens the effects on the overall trade balance.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 83 (2011)
Issue (Month): 2 (March)
Pages: 168-184

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Handle: RePEc:eee:inecon:v:83:y:2011:i:2:p:168-184
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