The effects of oil price shocks in a new-Keynesian framework with capital accumulation

Abstract

The economic implications of oil price shocks have been extensively studied since the 1970s'. Despite this huge literature, no dynamic stochastic general equilibrium model was available that captures two well-known stylized facts: 1) the stagflationary impact of an oil price shock, together with 2) the influence of the energy productivity of capital on the depth and length of this impact. We build, estimate and simulate a New-Keynesian model with capital accumulation, which takes the case of an economy where oil is imported from abroad, and where these stylized facts can be accounted for. Moreover, the Bayesian estimation of the model on the US economy suggests that the output elasticity of oil might have been above 10%, stressing the role of oil use in US growth at this time. Finally, our simulations confirm that an increase in energy efficiency significantly attenuates the effects of an oil shock -a possible explanation of why the third oil shock (1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008) did not have the same macro-economic impact as the first two ones. JEL Codes : C68, E12, E23, Q43

Path dependence in energy systems and economic development

“…Certainly, economies with higher energy intensities are more vulnerable to the impacts of an oil shock 52 . While rising energy prices can stimulate energy efficiency improvements 53,54 , these improvements are slow to be adopted 55 and an 'efficiency gap' exists between the most efficient technology and what consumers use 56 .…”

Lessons from energy history for climate policy: Technological change, demand and economic development

“…Inevitably, higher energy consumption implies a tendency to import more, putting pressure on the trade deficit, and to pollute more. Crucially, economies that have followed higher energy-intensity 25 pathways tended to suffer more from the impacts of oil price shocks (Acurio-Vásconez et al 2015). Furthermore, as Barbier (2011) explains, when faced with resource security issues, past governments have tended to favour policies that increase the supply rather moderate demand.…”

Introduction to: The enigma of economic growth: Beyond Solow-type macroeconomic perspectives

“…Voudouris et al (2015) focus on the 15 countries constituting the European "core", while Kuemmel et al (2015) focus only on the three big industrial economies (US, Japan and Germany). Acurio Vásconez et al (2015) consider the US alone.The Voudouris et al (2015) paper [a follow-on from Ayres and Voudouris (2014)] applies the semi-parametric approach from the previous paper to the last 50 years of growth of the 15 European countries. The most interesting results are (1) that useful energy can be regarded as a factor of production, along with capital and labor, (2) that the marginal productivities of the marginal products of these three factors are quite variable over time and (3) that output elasticities are not equal to cost shares.…”

“…Voudouris et al (2015) focus on the 15 countries constituting the European "core", while Kuemmel et al (2015) focus only on the three big industrial economies (US, Japan and Germany). Acurio Vásconez et al (2015) consider the US alone.…”

“…The paper by Acurio Vásconez et al (2015) focus on the impact of oil price shocks on the US, using a new "Keynesian" model to capture dynamic effects that the standard general equilibrium models cannot explain. In particular, their model reflects capital accumulation in an oil importing country with price shocks.…”