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Effects of oil price shocks on German business cycles

  • Tobias Zimmermann
  • Torsten Schmidt

    ()

In this paper we analyse to what extend movements in oil prices can help to explain business cycle fluctuations in Germany. To clarify whether oil price shocks have effects on real economic activity in Germany at all we use two different versions of a real business cycle model namely a closed and a small open economy version and introduce oil as an additional factor in the production function. Like in the related literature (Kim and Loungani 1992; de Miguel et al. 2003) in both versions oil price shocks have effects on real economic activity. In a second step we use these models to analyse whether the effects of oil price movements have changed over time. Our hypothesis is that the effects decreased since the seventies because oil use became a less important factor for industrial production. Therefore we split our data set into two subperiods namely from 1970 to 1986 and from 1987 to 2000 and calibrate our models to both subsets. In this model economy oil price shocks contribute substantially to business cycle fluctuations in the seventies and early eighties but only to a very limited extend in the late eighties and nineties

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 212.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:212
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  1. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," Departmental Working Papers 200106, Rutgers University, Department of Economics.
  2. In-Moo Kim & Prakash Loungani, 1991. "The role of energy in real business cycle models," Working Paper Series, Macroeconomic Issues 91-6, Federal Reserve Bank of Chicago.
  3. Finn E. Kydland & Edward C. Prescott, 1994. "The computational experiment: an econometric tool," Staff Report 178, Federal Reserve Bank of Minneapolis.
  4. Correia, I. & Rabelo, S. & Naves, J.C., 1994. "Business Cycles in a Small Open Economy," RCER Working Papers 382, University of Rochester - Center for Economic Research (RCER).
  5. Ben S. Bernanke & Mark Gertler & Mark Watson, 1997. "Systematic Monetary Policy and the Effects of Oil Price Shocks," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 91-157.
  6. Hooker, Mark A., 1996. "This is what happened to the oil price-macroeconomy relationship: Reply," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 221-222, October.
  7. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  8. Maußner, Alfred & Spatz, Julius, 2003. "Determinants of Business Cycles in Small Scale Macroeconomic Models: The German Case," Kiel Working Papers 1158, Kiel Institute for the World Economy (IfW).
  9. Juncal Cuñado & Fernando Pérez de Gracia, 2001. "Do oil price shocks matter? Evidence for some European countries," Working Papers 01-02, Asociación Española de Economía y Finanzas Internacionales.
  10. Hooker, Mark A., 1996. "What happened to the oil price-macroeconomy relationship?," Journal of Monetary Economics, Elsevier, vol. 38(2), pages 195-213, October.
  11. Carlos de Miguel & Baltasar Manzano & Jose M. Martin-Moreno, 2003. "Oil Price Shocks and Aggregate Fluctuations," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 47-61.
  12. Donald W. Jones, Paul N. Leiby and Inja K. Paik, 2004. "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-32.
  13. Peter Brandner & Klaus Neusser, 1992. "Business cycles in open economies: Stylized facts for Austria and Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 128(1), pages 67-87, March.
  14. Julio J. Rotemberg & Michael Woodford, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," NBER Working Papers 5634, National Bureau of Economic Research, Inc.
  15. Thomas Harjes, 1997. "Real business cycles in an open economy: An application to Germany," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(4), pages 635-656, December.
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