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

  • Rajeev Dhawan

    (Georgia State University)

  • Karsten Jeske

    (Mellon Capital Management)

  • Pedro Silos

    (Federal Reserve Bank of Atlanta)

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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