Oil Price Movements and the Global Economy: A Model-Based Assessment

Paolo Pesenti, Douglas Laxton, Dirk Muir, Selim Elekdag and Rene Lalonde

No 6700, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a five-region version (Canada, a group of oil exporting countries, the United States, emerging Asia and Japan plus the euro area) of the Global Economy Model (GEM) encompassing production and trade of crude oil, and use it to study the international transmission mechanism of shocks that drive oil prices. In the presence of real adjustment costs that reduce the short- and medium-term responses of oil supply and demand, our simulations can account for large endogenous variations of oil prices with large effects on the terms of trade of oil-exporting versus oil-importing countries (in particular, emerging Asia), and result in significant wealth transfers between regions. This is especially true when we consider a sustained increase in productivity growth or a shift in production technology towards more capital- (and hence oil-) intensive goods in regions such as emerging Asia. In addition, we study the implications of higher taxes on gasoline that are used to reduce taxes on labour income, showing that such a policy could increase world productive capacity while being consistent with a reduction in oil consumption.

Keywords: Dsge models; Oil prices; World economy (search for similar items in EconPapers)
JEL-codes: E66 F32 F47 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-cba, nep-dge, nep-ene, nep-mac and nep-opm
References: Add references at CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
https://cepr.org/publications/DP6700 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Oil Price Movements and the Global Economy: A Model-Based Assessment (2008)
Working Paper: Oil Price Movements and the Global Economy: A Model-Based Assessment (2008)
Working Paper: Oil Price Movements and the Global Economy: A Model-Based Assessment (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6700

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6700

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().