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Oil and the World Economy; Some Possible Futures

  • Michael Kumhof
  • Dirk Muir

This paper, using a six-region DSGE model of the world economy, assesses the GDP and current account implications of permanent oil supply shocks hitting the world economy at an unspecified future date. For modest-sized shocks and conventional production technologies the effects are modest. But for larger shocks, for elasticities of substitution that decline as oil usage is reduced to a minimum, and for production functions in which oil acts as a critical enabler of technologies, GDP growth could drop significantly. Also, oil prices could become so high that smooth adjustment, as assumed in the model, may become very difficult.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/256.

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Length: 31
Date of creation: 25 Oct 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/256
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  1. Blanchard, Olivier J & GalĂ­, Jordi, 2008. "The Macroeconomic Effects of Oil Shocks: Why are the 2000s so Different from the 1970s?," CEPR Discussion Papers 6631, C.E.P.R. Discussion Papers.
  2. Ayres, Robert U. & Warr, Benjamin, 2005. "Accounting for growth: the role of physical work," Structural Change and Economic Dynamics, Elsevier, vol. 16(2), pages 181-209, June.
  3. Sorrell, Steve & Miller, Richard & Bentley, Roger & Speirs, Jamie, 2010. "Oil futures: A comparison of global supply forecasts," Energy Policy, Elsevier, vol. 38(9), pages 4990-5003, September.
  4. Charles A. S. Hall & Stephen Balogh & David J.R. Murphy, 2009. "What is the Minimum EROI that a Sustainable Society Must Have?," Energies, MDPI, Open Access Journal, vol. 2(1), pages 25-47, January.
  5. Marcelle Chauvet & Jack G. Selody & Douglas Laxton & Michael Kumhof & Jaromir Benes & Ondra Kamenik & Susanna Mursula, 2012. "The Future of Oil; Geology Versus Technology," IMF Working Papers 12/109, International Monetary Fund.
  6. Ayres, Robert U., 2007. "On the practical limits to substitution," Ecological Economics, Elsevier, vol. 61(1), pages 115-128, February.
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