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Oil Prices, Welfare and the Trade Balance: An Intertemporal Approach

  • Lars E.O. Svensson

The paper examines welfare effects and the trade balance response to changes in the world oil prices and interest rates for a small oil-importing economy. The trade balance is mainly seen as the difference between saving and investment, and these are derived from intertemporal optimization. It is shown that the welfare effects consist of static terms of trade effects, intertemporal terms of trade effects, and employment effects. The trade balance deteriorates for temporary oil price increases, whereas its response is ambiguous for permanent oil price increases. For a fall in the world interest rate, the trade balance deteriorates, if the economy is a net borrower.

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File URL: http://www.nber.org/papers/w0991.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0991.

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Date of creation: Sep 1982
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Publication status: published as Svensson, Lars E.O. "Oil Prices, Welfare and the Trade Balance: An Intertemporal Approach." Quarterly Journal of Economics, Vol. 99, 1984, pp. 649-672 .
Handle: RePEc:nbr:nberwo:0991
Note: ITI IFM
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  1. Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 865-90, October.
  2. Obstfeld, Maurice, 1980. "Intermediate imports, the terms of trade, and the dynamics of the exchange rate and current account," Journal of International Economics, Elsevier, vol. 10(4), pages 461-480, November.
  3. Bazdarich, Michael J., 1978. "Optimal growth and stages in the balance of payments," Journal of International Economics, Elsevier, vol. 8(3), pages 425-443, August.
  4. Khang, Chulsoon, 1971. "An isovalue locus involving intermediate goods and its applications to the pure theory of international trade," Journal of International Economics, Elsevier, vol. 1(3), pages 315-325, August.
  5. David Lipton & Jeffrey Sachs, 1980. "Accumulation and Growth in a Two-Country Model: A Simulation Approach," NBER Working Papers 0572, National Bureau of Economic Research, Inc.
  6. Ronald E. Findlay & Carlos Alfredo Rodriguez, 1977. "Intermediate Imports and Macroeconomic Policy under Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 208-17, May.
  7. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  8. Buiter, Willem H, 1978. "Short-run and Long-run Effects of External Disturbances under a Floating Exchange Rate," Economica, London School of Economics and Political Science, vol. 45(179), pages 251-72, August.
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