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Productivity, Energy Prices and the Great Moderation: A New Link

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  • Rajeev Dhawan

    (Georgia State University)

  • Karsten Jeske

    (Mellon Capital Management)

  • Pedro Silos

    (Federal Reserve Bank of Atlanta)

Abstract

We build upon recent research that attributes the moderation of output volatility since the 1980s to the reduced volatility of the Total Factor Productivity (TFP) by investigating the linkage between energy price fluctuations and the stochastic process for TFP. First, we estimate a joint stochastic process for the energy price and TFP and establish that until around 1982, energy prices negatively affected TFP. This spillover has since disappeared. Second, we show that within the framework of a Dynamic Stochastic General Equilibrium (DSGE) model, the disappearance of this energy-productivity spillover accounts for close to 68 percent of the moderation in output volatility. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2009.07.001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 13 (2010)
Issue (Month): 3 (July)
Pages: 715-724

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Handle: RePEc:red:issued:09-14
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Keywords: Productivity; Energy price; Great moderation; Business cycles; Bayesian estimation;

Other versions of this item:

Find related papers by JEL classification:
  • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

References listed on IDEAS
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Cited by:

  1. Rajeev Dhawan & Karsten Jeske & Pedro Silos, 2008. "Productivity, energy prices, and the Great Moderation: a new link," Working Paper 2008-11, Federal Reserve Bank of Atlanta.
  2. William T. Gavin & Benjamin D. Keen & Finn E. Kydland, 2013. "Monetary policy, the tax code, and the real effects of energy shocks," Working Papers 1304, Federal Reserve Bank of Dallas.
  3. Fischer, Carolyn & Heutel, Garth, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," Working Papers 13-2, University of North Carolina at Greensboro, Department of Economics.
  4. Munechika Katayama, . "Declining Effects of Oil-Price Shocks," Departmental Working Papers 2009-02, Department of Economics, Louisiana State University.
  5. Finn E. Kydland & Fei Mao & William T. Gavin, 2011. "Monetary Policy, the Tax Code, and Energy Price Shocks," 2011 Meeting Papers 1160, Society for Economic Dynamics.
  6. Jambu, Marc-Antoine, 2010. "Has the Globalisation really generated more competition in OECD economies," MPRA Paper 19974, University Library of Munich, Germany.
  7. Yazid Dissou & Lilia Karnizova & Qian Sun, 2012. "Industry-level Econometric Estimates of Energy-capital-labour Substitution with a Nested CES Production Function," Working Papers 1214E, University of Ottawa, Department of Economics.

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