What determines the output drop after an energy price increase: household or firm energy share?
During the past thirty-five years, energy use as a fraction of output has dropped significantly at both the household and the firm levels. Therefore, we investigate a dynamic stochastic generalized equilibrium model economy's response to an energy price hike for different firm and household energy shares. Simulation results indicate that the economy's output response is mainly determined by the firm energy share. Increasing the household energy share while keeping firm energy share constant actually decreases the output response.
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- Rajeev Dhawan & Karsten Jeske, 2007.
"What determines the output drop after an energy price increase: household or firm energy share?,"
FRB Atlanta Working Paper
2007-20, Federal Reserve Bank of Atlanta.
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Journal of Money, Credit and Banking,
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