OECD Journal: Journal of Business Cycle Measurement and Analysis

Frequency :
3 times a year
ISSN :
1995-2899 (online)
ISSN :
1995-2880 (print)
DOI :
10.1787/19952899
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OECD Journal: Journal of Business Cycle Measurement and Analysis is jointly published by the OECD and the Centre for International Research on Economic Tendency Surveys (CIRET) to promote the exchange of knowledge and information on theoretical and operational aspects of economic cycle research, involving both measurement and analysis (see www.ciret.org/jbcma). Published as a part of the OECD Journal package.

Article
 

Energy Prices and Business Cycles

Lessons from a Simulated Small Open Economy Model You do not have access to this content

 
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Author(s):
Torsten Schmidt, Tobias Zimmermann
Publication Date
05 Jan 2012
Pages
5
Bibliographic information
No.:
5,
Volume:
2011,
Issue:
2
Pages
29–47
DOI
10.1787/jbcma-2011-5kg0nvzmgfd5

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Despite energy price hikes in recent years, growth rates turned out to be high in most industrialised countries. This pattern starkly contrasts the adverse effects that energy price shocks exerted on growth in the 1970s and 1980s. This study investigates whether a reduction in the energy cost share or different sources of energy price hikes are responsible for this divergence. By adding an exogenous twovariable VAR to a new open economy model for Germany, both energy prices and global economic activity are specified to be independent from domestic variables but assumed to influence each other. We show that it is sensible to calibrate the model in accordance with long-run fluctuations in important, observable, structural parameters and VAR coefficients on a period by period basis. Increases in energy prices and in global output serve as supply side and demand side shocks respectively. Our results suggest that the effects of recent energy price hikes have been different from past experiences because they were demand driven. Therefore, supply driven energy price increases could still be an important source of business cycle fluctuations.
JEL Classifications: E31, E32, F41
Keywords: Oil prices, new Keynesian open economy model