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Counterfactual Analyses of Oil Price Shocks using a World Model

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Abstract

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.

Suggested Citation

  • Ray Barrell & Knut A. Magnussen, 1996. "Counterfactual Analyses of Oil Price Shocks using a World Model," Discussion Papers 177, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:177
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    References listed on IDEAS

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    7. Hilde Christiane Bjørnland, 1996. "The Dynamic Effects of Aggregate Demand, Supply and Oil Price Shocks," Discussion Papers 174, Statistics Norway, Research Department.
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    10. Barrell, Ray & Sefton, James, 1997. "Fiscal Policy and the Masstricht Solvency Criteria," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(3), pages 259-279, June.
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    Citations

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    Cited by:

    1. Hilde Christiane Bjørnland, 1997. "Estimating Core Inflation - The Role of Oil Price Shocks and Imported Inflation," Discussion Papers 200, Statistics Norway, Research Department.
    2. Paavo Suni, 2008. "Effects of Energy Price Changes on Russian Economy," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 9(02), pages 9-15, July.
    3. Eika, Torbjorn & Magnussen, Knut A., 2000. "Did Norway gain from the 1979-1985 oil price shock?," Economic Modelling, Elsevier, vol. 17(1), pages 107-137, January.
    4. Torbjørn Eika & Knut A. Magnussen, 1998. "Did Norway Gain from the 1979-85 Oil Price Shock?," Discussion Papers 210, Statistics Norway, Research Department.
    5. Ebghaei, Felor, 2007. "OPEC and Its Role in Regulating Price of Petroleum," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 3(10), pages 2-22.
    6. Sverre Grepperud, 1997. "Soil Depletion Choices under Production and Price Uncertainty," Discussion Papers 186, Statistics Norway, Research Department.

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    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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