Counterfactual Analyses of Oil Price Shocks using a World Model
Oil price shocks have played a dominant role in the macroeconomic development of the world economy over the last twenty five years. In this paper a large, estimated, macro-economic world model with time varying trade weights, monetary and fiscal policy rules and explicit modelling of the behaviour of the OPEC countries is used for counterfactual analyses of oil price shocks. An alternative history with constant real oil prices is developed, showing that the recessions in the OECD area in 1974/75 and in 1980 would have been milder without the preceding oil price hike, while the 1982 recession seems unrelated to oil prices. A separate simulation indicates that the oil price drop in 1985/86 prevented a small recession from developing. The paper also shows that macroeconomic oil price effects vary considerably between the US, Germany and Japan according to the degree of oil dependence, trade with OPEC and the working of domestic labour markets. In particular there are notable differences in inflationary effects in Germany and the US. Results are tested against alternative specifications of monetary and fiscal policy rules.
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- Darby, Michael R, 1982.
"The Price of Oil and World Inflation and Recession,"
American Economic Review,
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- Michael R. Darby, 1981. "The Price of Oil and World Inflation and Recession," UCLA Economics Working Papers 228, UCLA Department of Economics.
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- Burbidge, John & Harrison, Alan, 1984. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(2), pages 459-484, June.
- John Burbidge & Alan Harrison, 1982. "Testing for the Effects of Oil-Price Rises Using Vector Autoregressions," School of Economics Working Papers 1982-01, University of Adelaide, School of Economics.
- Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
- Sachs, Jeffrey, 1982. "The oil shocks and macroeconomic adjustment in the United States," European Economic Review, Elsevier, vol. 18(1), pages 243-248. Full references (including those not matched with items on IDEAS)
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