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Productivity, Energy Prices and the Great Moderation: A New Link

  • Pedro Silos

    (Federal Reserve Bank of Atlanta)

  • Karsten Jeske

    (Federal Reserve Bank of Atlanta)

  • Rajeev Dhawan

    (Georgia State University)

We study how total factor productivity (TFP), energy prices and the great moderation are linked. First, we estimate a joint stochastic process for the energy price and TFP and establish that until 1982:II, energy prices negatively affected productivity. This spill-over has since disappeared. Second, we show that within the framework of a Dynamic Stochastic General Equilibrium (DSGE) model, the disappearance of this energy-productivity spill-over generates the significantly lower volatility of output and its components. Specifically, the change in the joint stochastic process accounts for close to 70 percent of the moderation in output volatility.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 877.

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Date of creation: 2008
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Handle: RePEc:red:sed008:877
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  7. Linnea Polgreen & Pedro Silos, 2006. "Crude substitution: the cyclical dynamics of oil prices and the college premium," Working Paper 2006-14, Federal Reserve Bank of Atlanta.
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  23. Anton Nakov & Andrea Pescatori, 2007. "Oil and the Great Moderation," Working Paper 0717, Federal Reserve Bank of Cleveland.
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