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Energy and the Macroeconomy: The Role of Consumer Durables

Author

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  • Karsten Jeske
  • Rajeev Dhawan

Abstract

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

Suggested Citation

  • Karsten Jeske & Rajeev Dhawan, 2006. "Energy and the Macroeconomy: The Role of Consumer Durables," 2006 Meeting Papers 719, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:719
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    Cited by:

    1. Dhawan, Rajeev & Jeske, Karsten, 2008. "What determines the output drop after an energy price increase: Household or firm energy share?," Economics Letters, Elsevier, vol. 101(3), pages 202-205, December.
    2. Rajeev Dhawan & Karsten Jeske, 2007. "Taylor rules with headline inflation: a bad idea," FRB Atlanta Working Paper 2007-14, Federal Reserve Bank of Atlanta.

    More about this item

    Keywords

    Energy Prices; Business Cycles; Durable Goods;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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