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Oil Efficiency, Demand, and Prices: a Tale of Ups and Downs

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  • Luca Guerrieri

    (Federal Reserve Board)

  • Martin Bodenstein

    (Asian Development Bank and Federal Reserve Board)

Abstract

The macroeconomic implications of oil price fluctuations vary according to their sources. Our estimated two-country DSGE model distinguishes between country-specific oil supply shocks, various domestic and foreign activity shocks, and oil efficiency shocks. Changes in foreign oil efficiency, modeled as factor-augmenting technology, were the key driver of fluctuations in oil prices between 1984 and 2008, but had modest effects on U.S. activity. A pickup in foreign activity played an important role in the 2003-2008 oil price runup. Beyond quantifying the responses of oil prices and economic activity, our model informs about the propagation mechanisms. We find evidence that nonoil trade linkages are an important transmission channel for shocks that affect oil prices. Conversely, nominal rigidities and monetary policy are not.

Suggested Citation

  • Luca Guerrieri & Martin Bodenstein, 2012. "Oil Efficiency, Demand, and Prices: a Tale of Ups and Downs," 2012 Meeting Papers 25, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:25
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    3. Lorusso, Marco & Pieroni, Luca, 2018. "Causes and consequences of oil price shocks on the UK economy," Economic Modelling, Elsevier, vol. 72(C), pages 223-236.
    4. Coletti, Donald & Lalonde, René & Masson, Paul & Muir, Dirk & Snudden, Stephen, 2021. "Commodities and monetary policy: Implications for inflation and price level targeting," Journal of Policy Modeling, Elsevier, vol. 43(5), pages 982-999.
    5. Ine Van Robays, 2016. "Macroeconomic Uncertainty and Oil Price Volatility," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(5), pages 671-693, October.
    6. Delalibera, Bruno R. & Serrano-Quintero, Rafael & Zimmermann, Guilherme G., 2023. "Reforms in the natural gas sector and economic development," Economic Modelling, Elsevier, vol. 125(C).
    7. Maurizio Michael Habib & Sascha Bützer & Livio Stracca, 2016. "Global Exchange Rate Configurations: Do Oil Shocks Matter?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 443-470, August.
    8. Chen, Jinzhi & Song, Lu & Xie, Li, 2025. "Ensuring the supply and stable price of energy: The role of energy state-owned enterprises," Energy, Elsevier, vol. 322(C).
    9. Christiane Baumeister & Lutz Kilian, 2014. "Real-Time Analysis of Oil Price Risks Using Forecast Scenarios," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(1), pages 119-145, April.
    10. Zubarev, Andrey (Зубарев, Андрей) & Polbin, Andrey (Полбин, Андрей), 2017. "Scenario Analysis of the Impact of Reducing the Export Duty on Oil on the Russian Economy within the Framework of the General Equilibrium Model [Сценарный Анализ Влияния На Российскую Экономику Сни," Working Papers 051734, Russian Presidential Academy of National Economy and Public Administration.
    11. Rangan Gupta & Hylton Hollander & Mark E. Wohar, 2016. "The Impact of Oil Shocks in a Small Open Economy New-Keynesian Dynamic Stochastic General Equilibrium Model for South Africa," Working Papers 201652, University of Pretoria, Department of Economics.
    12. Zubarev, Andrey V. (Зубарев, Андрей) & Polbin, Andrey V. (Ролбин, Андрей), 2016. "Estimation of Macroeconomic Effects from the Decline in Oil Export Duty [Оценка Макроэкономических Эффектов От Снижения Экспортной Пошлины На Нефть]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 8-35, December.
    13. Conny Olovsson, 2019. "Oil prices in a general equilibrium model with precautionary demand for oil," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 1-17, April.
    14. Bergholt, Drago & Larsen, Vegard H. & Seneca, Martin, 2019. "Business cycles in an oil economy," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 283-303.
    15. Baas, Timo & Belke, Ansgar, 2017. "Oil price shocks, monetary policy and current account imbalances within a currency union," CEPS Papers 13334, Centre for European Policy Studies.
    16. Drago Bergholt, 2014. "Monetary Policy in Oil Exporting Economies," Working Papers No 5/2014, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    17. Prest, Brian C. & Fell, Harrison & Gordon, Deborah & Conway, TJ, 2024. "Estimating the emissions reductions from supply-side fossil fuel interventions," Energy Economics, Elsevier, vol. 136(C).
    18. Liu, Qing & Shi, Kang & Wu, Zhouheng & Xu, Juanyi, 2014. "Oil price stabilization and global welfare," Journal of Development Economics, Elsevier, vol. 111(C), pages 246-260.

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