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Energy and the Macroeconomy: The Role of Consumer Durables

  • Karsten Jeske
  • Rajeev Dhawan

So far the literature on DSGE models with energy price shocks models energy on the production side only. In these models, energy shocks are responsible for only a negligible share of output fluctuations. We study the robustness of this finding. The aim of our paper is to model the response of household behavior to energy shocks. Specifically, in addition to energy on the production side, we explicitly model private consumption of energy, durable goods and non-durable goods in a DSGE model. We calibrate the model to match energy and durable goods consumption observed in U.S. data and simulate the economy to compare business cycle statistics to those coming from an economy without durable goods. We find that modeling private energy consumption as a complement to durable goods consumption does not significantly raise the share of output fluctuations coming from energy shocks. TFP shocks continue to be the driving force behind business cycles

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 719.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:719
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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