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

Author

Listed:
  • 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)

Suggested Citation

  • Rajeev Dhawan & Karsten Jeske & Pedro Silos, 2010. "Productivity, Energy Prices and the Great Moderation: A New Link," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 715-724, July.
    • Handle: RePEc:red:issued:09-14
    DOI: 10.1016/j.red.2009.07.001
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    2. Carolyn Fischer & Garth Heutel, 2013. "Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 197-210, June.
    3. Rajeev Dhawan & Karsten Jeske & Pedro Silos, 2010. "Productivity, Energy Prices and the Great Moderation: A New Link," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 715-724, July.
    4. Munechika Katayama, 2013. "Declining Effects of Oil Price Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 977-1016, September.
    5. Zhao, Lin & Zhang, Xun & Wang, Shouyang & Xu, Shanying, 2016. "The effects of oil price shocks on output and inflation in China," Energy Economics, Elsevier, vol. 53(C), pages 101-110.
    6. Basbay, Mustafa Metin & Elgin, Ceyhun & Torul, Orhan, 2016. "Energy consumption and the size of the informal economy," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-28.
    7. Adugna Olani & Samuel Gamtessa, 2016. "How Does Energy-cost Lead To Energy Efficiency? Panel Evidence From Canada," Working Paper 1368, Economics Department, Queen's University.
    8. William Gavin & Benjamin Keen & Finn Kydland, 2015. "Monetary Policy, the Tax Code, and the Real Effects of Energy Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 694-707, July.
    9. Yazid Dissou & Lilia Karnizova & Qian Sun, 2015. "Industry-level Econometric Estimates of Energy-Capital-Labor Substitution with a Nested CES Production Function," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 107-121, March.
    10. Argentiero, Amedeo & Bollino, Carlo Andrea & Micheli, Silvia & Zopounidis, Constantin, 2018. "Renewable energy sources policies in a Bayesian DSGE model," Renewable Energy, Elsevier, vol. 120(C), pages 60-68.
    11. 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.
    12. Jambu, Marc-Antoine, 2010. "Has the Globalisation really generated more competition in OECD economies," MPRA Paper 19974, University Library of Munich, Germany.
    13. Meenagh, David & Minford, Patrick & Oyekola, Olayinka, 2015. "Oil Prices and the Dynamics of Output and Real Exchange Rate," Cardiff Economics Working Papers E2015/18, Cardiff University, Cardiff Business School, Economics Section.

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    More about this item

    Keywords

    Productivity; Energy price; Great moderation; Business cycles; Bayesian estimation;
    All these keywords.

    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

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